Crop substitution and alternative crops for
tobacco
John C Keyser
Consultant
Study conducted as a technical document for
The first meeting of the Ad Hoc Study Group on Alternative Crops
established by the Conference of the Parties to the WHO Framework
Convention on Tobacco Control
February 2007
i
LIST OF ABBREVIATIONS
AFUBRA
EurepGAP
FAO
WHO FCTC
HACCP
MOPAM
NGO
PAM
TAZ
VFC
WHO
Brazilian Tobacco Growers’ Association
European Good Agriculture Practices
Food and Agriculture Organization
Framework Convention on Tobacco Control
Hazard Analysis and Critical Control Point
Multiple Objective Policy Analysis Matrix
Non-governmental Organization
Policy Analysis Matrix
Tobacco Association of Zambia
Virginia flue-cured tobacco
World Health Organization
WEIGHTS AND MEASURES
1 hectare (ha)
=
2.417 acres (ac)
1 kilogram (kg)
=
2204 pounds (lbs)
1000 kilograms (kgs)
=
1 metric ton (mt)
1 kilometer (km)
=
0.62 miles
The findings, interpretations, and conclusions expressed in this report are entirely those of the author
and should not be attributed in any manner whatsoever to any of the Parties to the WHO Framework
Convention for Tobacco Control, the World Health Organization or the Tobacco Free Initiative.
Questions and comments on this report are welcome by writing to the author at Box 35220, Lusaka,
Zambia or by email to [email protected].
ii
TABLE OF CONTENTS
List of Abbreviations ............................................................................................................................ii
Weights and Measures..........................................................................................................................ii
Table of Contents .................................................................................................................................iii
I.
Introduction................................................................................................................................... 1
A.
B.
Objectives ........................................................................................................... 1
Approach and limitations ..................................................................................... 1
II. Context of the discussion .............................................................................................................. 5
A.
B.
C.
Arguments for and against tobacco ..................................................................... 5
Market prospects for tobacco .............................................................................. 8
Alternative competitiveness opportunities............................................................ 9
III. Country-level issues and analysis .............................................................................................. 12
A.
B.
C.
D.
E.
F.
Indonesia........................................................................................................... 12
Zimbabwe.......................................................................................................... 18
Malawi ............................................................................................................... 28
Brazil ................................................................................................................. 32
China................................................................................................................. 38
Canada ................................................................................................................. 39
IV. CONCLUSIONS ......................................................................................................................... 42
REFERENCES.................................................................................................................................... 46
Appendix 1: Tobacco production in selected countries (1961–2005)
Appendix 2: Indonesia financial indicators for tobacco and other crops
Appendix 3: Zimbabwe financial indicators for tobacco and other crops
Appendix 4: Malawi financial indicators for tobacco and other crops
iii
Crop substitution and alternative crops for tobacco
I.
INTRODUCTION
As tobacco control measures continue to gain momentum around the world, various
stakeholders have expressed concern that these policies are likely to have serious negative
consequences for the economies of tobacco-producing countries. Tobacco consumption is
predicted to increase globally for at least the next 20 years, but the ultimate objective of the
WHO Framework Convention on Tobacco Control (WHO FCTC) is clear and that is to
curtail tobacco consumption to the greatest extent possible. For individuals and nations
involved with tobacco production and marketing, this is regarded as a serious threat and has
given rise to various calls for crop substitution and long-term diversification efforts. Equally,
some advocating for tobacco control have gone further and called for reduced production on
grounds that tobacco is not a good choice for smallholder farmers, rural economies or the
environment.
Considering that hundreds of thousands of families, particularly in developing countries, are
engaged in tobacco agriculture and that there is likely to be a reduction in demand for tobacco
products over the medium to long-term future, a decision (FCTC/COP1(17)) was made at the
first session of the Conference of the Parties to the WHO FCTC in Geneva to establish an ad
hoc study group to identify viable crop alternatives to tobacco (1). Among other things, the
Conference of the Parties called on the study group to summarize the uptake of existing
economically viable alternatives for tobacco and to recommend cost-effective diversification
initiatives.
This paper has been prepared in response to that mandate for presentation to a meeting of the
study group on alternative crops held in Brasilia from 27–28 February 2007. The paper looks
at farm-level production and marketing issues and seeks to draw comparisons between the
costs and benefits of tobacco cultivation and opportunities to develop alternative agricultural
enterprises.
A.
Objectives
As set out in the terms of reference for this study, the paper’s main objectives are to:
B.
•
Summarize existing studies that examine crop substitution and the
profitability of tobacco and alternative agricultural crops;
•
analyse the relative costs and profitability of agricultural crops with the
existing data;
•
discuss and outline the main issues that need to be considered as part of a
crop diversification programme.
Approach and limitations
Structure of the paper
1
To achieve these objectives, the discussion is presented in four main sections including the
present introduction. Following a few specific remarks about the approach and limitations of
this study, Section 2 begins by setting out some important contextual issues that help
elaborate the reasons why farmers grow tobacco and what is involved in developing
competitive value chains for alternative products.
The main analysis is then presented in Section 3, which is built around a set of six country
case studies. The first three case studies look at Indonesia, Zimbabwe and Malawi, where
some very specific cost and profitability data for tobacco and other crops grown by large and
small-scale farmers are available. The discussion of these countries again begins with some
contextual information about the scale and importance of tobacco production and type of
farmers involved in this commodity. The farm-level cost and profitability data are then
compared to understand what may or may not be possible from a diversification perspective.
Taken together, these first three studies show that several crops can be more profitable than
tobacco and may offer a possibility of better financial returns. Equally, however, the analysis
also finds that the markets for these commodities are much smaller and more difficult to
enter. The notion of developing one or two new products as complete substitutes for tobacco
is not realistic at this point in time and no single crop is likely to play the same important and
widespread role as tobacco does at the present. An important challenge for tobacco growing
countries and communities therefore is to benefit as much as possible from tobacco
production and to use that income to invest in new activities. This is particularly important
for countries with a significant participation by smallholder farmers in tobacco agriculture,
for whom the importance of including a high-value crop as part of the farm mix must be
recognized.
The next case study looks at three diversification experiences in Brazil. Like Indonesia,
Brazil ranks as a middle-income country and so has greater possibilities to develop highvalue agriculture products for the domestic market than poorer countries like Malawi or
Zimbabwe. The examples summarized here look at southern Brazil and cover vegetables sold
in local outlets, bananas for national trade and organic vegetables being marketed through a
supermarket chain. While these ventures have each been successful in their own way, all have
limited outreach and several unique problems were encountered along the way that had to be
addressed. Taken together, therefore, these cases each help to illustrate the point about
attention to supply chain processes and the need for multiple value chains to emerge as viable
alternatives to tobacco.
The next country considered in the analysis is China. China is by far the world’s largest
tobacco grower and currently accounts for around 42% of global production. In this case,
however, the data required to draw meaningful comparisons with other farm commodities
were not available. Nevertheless, the example of China is still worth highlighting especially
with regard to future research on crop substitution. Because of China’s dominant position and
ability to subsidize production in the framework of a centrally planned tobacco policy, this
country is likely to be an important competitor to other tobacco growing countries.
The final case study is again somewhat different and looks at the diversification experience in
Canada as a developed country producer. More than 80% of tobacco is now grown in the
developing world, but this example still helps to present an additional perspective on what is
possible for crop substitution. Like the cases in Brazil, the analysis shows that Canadian
farmers also had several ups and downs in developing new enterprises and were sometimes
2
reluctant to leave tobacco cultivation because of the high profitability and secure market
structures for this crop. Over time, however, Canada has apparently been successful in
striking a realistic balance between new enterprises and efficiency improvements in tobacco.
The development of new commodities helped ease resistance to tobacco control measures and
even allowed remaining tobacco farmers to increase their profitability by growing a higher
percentage of their quota. The case of Canada also helps to illustrate the importance of nonfarm opportunities as part of the dialogue on crop diversification. The paper concludes in
Section 4 with a summary of main findings and areas for further analysis.
Approach and limitations
This paper was prepared from an agricultural economics point of view. Rather than focus
explicitly on traditional health concerns that are usually at the forefront of discussions of
tobacco policy, therefore, the overall approach is to be as straightforward about farm-level
production and marketing issues as possible. Among other considerations, this approach leads
to the conclusion that tobacco has many important and useful roles to play in national and
rural economies that should not be overlooked. As the discussion shows, this is certainly not
meant to imply that tobacco is indispensable in the long term or to be dismissive of the very
well-documented arguments against tobacco consumption and importance of working for a
reduction of this crop. Instead, the approach begins with a recognition that the long-term
future of tobacco is uncertain and likely to decline. As provisions of the WHO FCTC begin to
take effect, it is important to have an idea of what farm products could begin to substitute for
tobacco and what type of support is required to develop these commodities.
By approaching this discussion from an agricultural economics perspective, it is therefore
helpful to put aside some of the main arguments between pro- and anti-tobacco groups that
sometimes distract attention from farm-level issues. Agricultural production and marketing
begins with the decisions farmers make rather than consumer health concerns, and it is
important to have a clear understanding of how tobacco compares with other farm enterprises
and economic opportunities available to primary producers. The analysis cannot possibly
address all of the issues that need to be considered in preparing a diversification plan, but
hopefully serves as a starting point for improved dialogue by the study group on alternative
crops and other stakeholders in the tobacco debate. Much more discussion is needed at many
levels in individual countries to decide how best to cope with the threat of shrinking tobacco
markets, but this can only be done from a clear and rational perspective that includes an
understanding of farm decision-making.
Equally, while this paper seeks to highlight the most important issues that need to be
considered at the farm level, the scope of this study is also very limited and several
constraints need to be recognized. In the first place, the analysis is built around readily
available literature only. An Internet search was carried out to identify key reports, but this
was a fairly limited exercise and should only be seen as a starting point for further analysis
and review. Beyond the topics covered here, for example, many other issues must all be
figured together when considering a country’s diversification opportunities. These include
macroeconomic management, investments in rural roads and communications infrastructure,
the rule of law and enforceability of contracts, import duties and tax structures, investments
in education and the success of programmes that address other public health risks, like
malaria and HIV/AIDS, which impact worker productivity. By highlighting some of the main
issues from an agricultural perspective, it is hoped this paper will help facilitate improved
3
understanding of important farm-level incentives and constraints for the development of
alternative crops.
Finally, it should be emphasized that this paper was prepared by an independent consultant
and must not be read in any way whatsoever as a statement of policy or specific
recommendations endorsed by the Parties to the WHO FCTC. The case studies cover Party
and non-Party states and there is certainly no pretence of making any formal policy
recommendations. Instead, the paper merely seeks to provide background information and
analysis that may be useful for work by the study group on alternative crops. Most Parties to
the Convention, in fact, derive a smaller share of total income from tobacco than many of the
countries covered here. This helps to alleviate pressure from the search for viable alternatives
and may make the transition to new crops easier to achieve.
4
II.
CONTEXT OF THE DISCUSSION
A.
Arguments for and against tobacco
There is no doubt that tobacco consumption has many important costs to society and is a
significant drain on national health budgets, worker productivity and household income to
mention just a few areas of negative impact.1 The arguments against tobacco consumption
however are very different from saying that the crop is not an attractive option for farmers or
that production should be reduced from a primary producer’s point of view. Numerous
arguments have been made against tobacco farming, including the risks of green tobacco
sickness and exposure to pesticides, farmer indebtedness and deforestation, but many other
lines of work also involve occupational hazards and discussion of these businesses usually
revolves around how to manage the risks effectively. Tobacco is a unique case because of its
addictive properties and high costs to society, but this does not necessarily mean that farmers
should (or will) stop growing the crop as long as it is still in demand, is profitable and
compares favourably with other agricultural possibilities.
Equally, while many of the arguments against tobacco are concerned with the dangers of the
crop and unequal trading relations that sometimes exist between farmers and tobacco
companies, proponents of tobacco have tried to claim that the crop is the only commodity
able to provide a high income and is absolutely indispensable for rural employment creation,
foreign exchange earnings and government revenue.2 These arguments have been used quite
effectively to slow the implementation of tobacco control measures around the world (5).
Countries like Zimbabwe and Malawi that derive a large share of income from tobacco have
been especially vocal in raising concerns about the potential negative effects of tobacco
control measures. A summary of some major arguments for and against tobacco production
from an agriculture perspective is given below.
Table 1: Some pros and cons of growing tobacco from an agricultural sector
perspective
Pros
Cons
•
Tobacco is a major contributor to local •
economies.
Tobacco does not provide a relatively
good income.
•
Tobacco is profitable and has brought •
development to rural areas.
Farmers are caught in unequal trading
relations.
•
Without tobacco, farmers could not earn •
as much income.
Tobacco farming has trapped poor
growers into a never-ending debt cycle.
•
Tobacco supports food production.
Tobacco production exposes farmers to
serious health risks.
•
Tobacco creates more employment per
•
1
These costs were well described in the World Bank publication Curbing the Epidemic (2) and have been
thoroughly documented in other sources as well.
2
See, for example: ITGA (3) and Forces, International (4).
5
hectare than other enterprises.
•
•
Tobacco contributes to rural poverty and
food insecurity.
Demand for tobacco products continues
to grow.
• Tobacco contributes to deforestation and
environmental degradation.
Perspective on the debate
There are clearly strong claims on both sides of the debate. This short paper cannot possibly
answer all of the arguments for and against tobacco from the agricultural perspective, but
several themes regarding costs and profitability, labour requirements, safe handling of
agricultural inputs and rural credit recovery do recur throughout the discussion and are
important to bear in mind when examining the case studies that follow.
Most of all, it should be kept in mind that the choice is not simply between growing tobacco
and not growing tobacco. This greatly oversimplifies the issue and detracts attention from the
real challenge, which is to develop viable, high-value alternatives alongside tobacco that are
internationally competitive and offer farmers a realistic choice of how to allocate their
resources. Merely to argue that tobacco has many dangers and that farmers should stop
growing the crop, or that tobacco control measures will somehow bring about the downfall of
tobacco economies overnight, completely misses the point of what is required for long-term
agricultural competitiveness. Because of the uncertainty over future tobacco markets, now is
most definitely a good time to look for sustainable alternatives and to consider what is needed
to help these products emerge, but this is not the same as saying that the policy objective
should be to curtail tobacco production because of the prospect of some reduction in global
demand 25 or 30 years in the future.
On this basis, one important finding of the case studies is that tobacco profits do, more often
than not, compare very favourably with alternative enterprises, at least in the countries
covered here. This is true in absolute terms per hectare and on a daily basis measured by
returns to labour. While this is not the same as saying that tobacco is always (or even
sometimes) an optimal choice from a farm management point of view, the high profitability
of the crop is a major challenge that must to be taken seriously by any diversification effort.
Moreover, while several alternative farm products are shown to rival and sometimes surpass
tobacco for potential gross and net incomes, the markets for these commodities are usually
much smaller and more difficult to enter. The fact that tomatoes can be more profitable than
tobacco in Malawi, for example, is not a sufficient reason to recommend that farmers switch
to tomato production or even to conclude that tomatoes could ever substitute for even a small
loss of tobacco revenue if the right marketing channels are not in place. Similarly, it has
sometimes been claimed that sugar is a good diversification option for Malawi, but in this
case, the crop is grown in a different climatic zone by large estates rather than smallholders
who are the ones primarily involved with tobacco production.
Equally, it must be kept in mind that most “tobacco farmers” are already quite well
diversified. One valid criticism of tobacco is that the crop is very harsh on the soil, but for
this exact reason, tobacco is almost always grown in a carefully planned rotation even by
small-scale farmers. Moreover, there is considerable evidence to show that tobacco can (and
did) help to fuel the process of crop diversification. In Zimbabwe, for example, the case study
finds that large commercial farmers were actively using tobacco revenue to develop new
6
enterprises specifically to lessen their dependence on tobacco. As persuasive as some
arguments against tobacco production may be, any strategy that ignores the benefits of this
crop as part of a farmer’s overall enterprise system will be incomplete at best and may have a
risk of failure.
Another consideration is the cost of tobacco cultivation. Compared with many other farm
enterprises, there is no doubt that tobacco ranks as an expensive enterprise and this presents
many important challenges for large and small-scale farmers alike. At the same time, of
course, this problem is not unique to tobacco and another important finding discussed in the
case studies is that most alternative crops that could rival tobacco for net profits and attractive
rates of return are also expensive to grow. Long-term indebtedness, the need for pre-season
finance and problems with unscrupulous moneylenders are not unique to tobacco and these
issues will also have to be addressed for other commodities to develop sustainable
alternatives.
From a farmer safety point of view, it is clear that tobacco does pose many serious risks in
terms of growers coming in contact with dangerous pesticides and the potential for green
tobacco sickness from handling unprocessed leaves. This latter problem is unique to tobacco,
but the issue of pesticides is not. Notwithstanding the potential for niche marketing of organic
products, mainstream cotton, paprika and fruit and vegetable crops all require many of the
same chemicals as tobacco. Safe handling of these products is important, but the arguments
against tobacco need to be put in the right context, since a majority of attractive substitutes
again face the same type of challenges.
Finally, from the environmental perspective, one major argument against tobacco is the large
demand for firewood or coal for curing the crop. Like much of the discussion around tobacco
growing, however, the deforestation issue again needs to be put in perspective since it is
mainly Virginia flue-cured (VFC) tobacco and some other minor varieties that demand a
high, steady temperature for curing. There is no doubt that VFC tobacco is the most widely
grown type of tobacco and that there is an important environmental threat associated with this
crop. At the same time, however, other major varieties like burley (which accounts for over
90% of total production in Malawi) are either air or sun cured and so do not involve a major
deforestation risk. Many other factors like high population densities, small farm sizes and the
use of charcoal for cooking, of course, also contribute to deforestation and can be made
worse when farmers do not have adequate income. Similarly, many other crops like soybeans
and cattle (which have expanded rapidly in Brazil) also contribute to deforestation. Many of
these alternatives in fact provide only a fraction of the income per hectare compared to
tobacco, and so may even pose a greater environmental threat because of the need to clear
additional land to earn the same amount.1
Another environmental argument against tobacco is the damage it does to the soil. As noted
already, this is a very genuine concern since tobacco is quite harsh. Equally, however, this
risk can be managed by following an appropriate rotation. Farmers are almost always well
aware of this and specifically include leguminous crops as a part of their crop mix to restore
soil fertility. Sometimes, this system can come under pressure when farmers only have access
to very small plots, but even in these cases, farmers are unlikely to grow tobacco to their own
1
Unfortunately, time and data limitations prevented specific calculations being made, but it would be interesting
to show how the total income from VFC tobacco on an extended parcel, including the area required for fuel
wood, compares with the income from other crops grown over the same area.
7
long-term detriment. No doubt some examples can be found, but no overall pattern of
farmland being ruined and left abandoned because of tobacco was discovered during the
course of this study.1
B.
Market prospects for tobacco
While there may be many persuasive reasons to look for crop substitutes, it cannot be
overlooked that global demand for tobacco is still increasing. As a way of reducing
consumption, supply-side measures are widely acknowledged to be ineffective2, but there is
still a reluctance to endorse or even accept tobacco as a potentially viable part of current and
future farm strategies. Until such time as there is no longer any demand for the crop, farmers
somewhere will be involved in tobacco production and the need to switch to new enterprises
will not happen overnight. The true competitiveness of tobacco compared with other
enterprises, must therefore be seen in the wider context of trends in market demand and
market prospects for alternative commodities.
Demand trends
While is not too early to discuss crop alternatives, worldwide demand for tobacco continues
to grow. This is particularly true in developing countries, which now account for 70% of
world consumption, with China alone accounting for 44%. In developed countries, there has
been a marked decline in per capita and even absolute consumption, but world demand is still
expected to grow by 2.3% per annum until 2010, including 3.2% annual growth in
developing countries.3 In the longer term, the number of smokers is expected to increase to
1.7 billion by 2025, from 1.1 billion at the turn of the century (9).
As in the recent past, growth in demand is expected to be fueled significantly by population
and income growth. Importantly for crop substitution, the trends for total consumption are
likely to overwhelm the demand-depressing effects of increased taxes and other non-financial
programmes such as advertising bans and establishment of smoke-free areas called for by the
WHO FCTC. In the latter part of the 1990s, there was some slowdown in the growth of
developing country tobacco demand. This was almost certainly due to the economic crisis in
parts of south-east Asia, but may also reflect some degree of effectiveness in country
campaigns to increase awareness about the health effects of tobacco use (8).
Production trends
1
The case of deforestation in Malawi is probably the best example of long-term environmental degradation from
tobacco, but again, deforestation is mainly associated with VFC tobacco (an important crop in the past) rather
than burley tobacco, which is the main crop now. As an extremely poor country with very high population
densities, many other factors have also contributed to deforestation and will continue to pose a threat with or
without tobacco. See Geist (6) for a more detailed discussion of the environmental risks associated with tobacco
production.
2
In a detailed analysis of supply side measures, Jacobs, et al. (7, p 330) conclude that “efforts driven by a desire
to move production toward crops with less negative health implications are not likely to be effective as a means
of controlling tobacco use. A basic observation in markets is that if one supplier of a commodity is prevented
from operating, another will quickly emerge to take its place as long as there is an incentive to do so.”
3
Mergos, 2001 quoted in Jaffee (8) who notes that this projection should probably be regarded as the upper
limit on expected growth in word demand. According to Jaffee, “Mergos’ projections appear to be extrapolated
from trends in demand, prices, population, growth, and income growth over the 1980 to 2000 period."
8
During the period from 1980 to 2005, world production of unmanufactured tobacco leaf
increased from 5.26 million tons to 6.6 million tons, or about 1% per annum on average.
Most of this growth occurred during the 1980s and early 1990s. There was a slowdown
thereafter, partly because of the excessive unsold stocks in several countries, including China,
India and Turkey. World production grew at 1.95% per annum during the 1980s, then
declined by 0.69% per annum over the 1990 to 2001 period (8); it has again been on the
increase since 2003 (see Appendix 1).
Importantly for diversification programmes, the expansion in production since 1980 has been
entirely accounted for by developing countries. Tobacco production in developed countries,
including the United States, European Union and Japan declined from 1.99 million tons to
1.29 million tons from 1980 to 2001. In sharp contrast, tobacco production in developing
countries increased from 3.26 million tons in 1980 to 5.68 million tons in 2001. Developing
country share of global production thus rose from 62% to 81%, but again this total growth
only occurred during the 1980s and was stagnant during the 1990s. These global figures,
however, cloud a more detailed trend in which production in China leveled off or even
declined in some years, while output continued to expand in countries such as Brazil, India,
Zimbabwe (until 2001), Zambia and Malawi. According to an analysis in 2003 (8), major
factors underpinning these divergent trends have included:
C.
•
shifts in locus of demand from developed to developing countries;
•
declining political and taxpayer support to tobacco in developed countries;
•
cost competitiveness of developing country tobacco and relatively high
profitability compared with main other crops in these countries;
•
direct technical and financial support for tobacco cultivation in several
developing countries;
•
investments by international companies in the promotion of tobacco
production and cigarette manufacturing in selected developing countries.
Alternative competitiveness opportunities
The market prospects for tobacco are far more complicated and subtle than described above,
but these basic facts about global supply and demand do at least show that the switch to
alternative crops does not have to happen overnight. It is widely accepted that reductions in
demand will be gradual at best, meaning that tobacco will still be an important part of some
rural and national economies for many years to come. This simple fact does not mean that
countries can afford to be complacent in promoting alternatives, or that individual farmers
might not be better off growing something else, but it does at least mean that time is on the
tobacco grower’s side while investments in new production and processing systems for
alternative commodities are being made.
Before proceeding with the discussion of individual country experiences it is therefore
helpful to review a few basic concepts of what is required for competitive agricultural
development. In developed countries, where most tobacco was produced until the late 1960s,
diversification away from tobacco has been facilitated by quota buy-outs and other generally
favourable economic conditions that naturally attracted workers away from tobacco to other
9
areas of agriculture and non-farm employment. These opportunities do not exist to the same
extent in most places where tobacco is grown today. The development of crop substitutes is
likely to be a far more complex business in the developing world that demands attention to a
great many things, by farmers and other private investors as well as by governments and
donors alike.
In beginning to understand this challenge, the concepts of value chain and supply chain
development are worth bringing to the fore. Although many definitions are applied, value
chains essentially represent enterprises in which different producers and marketing
companies work within their respective businesses to pursue one or more end-markets. Value
chain participants sometimes cooperate to improve the overall competitiveness of the final
product, but may also be completely unaware of the linkages between their operation and
other upstream or downstream participants. Value chains themselves encompass all of the
factors of production including land, labour, capital, technology and inputs, as well as all
economic activities including input supply, production, transformation, handling, transport,
marketing and distribution necessary to create, sell and deliver a product to a certain
destination (10).
Supply chain development, on the other hand, is a complementary concept applied to a
network of companies across a given industry. Whereas value chain analysis looks at the
upstream accumulation of value as a determinant of international competitiveness, supply
chain analysis is a downstream concept that looks at the flow of goods from the supplier to
consumer. Both concepts are concerned with the organization of value-adding activities while
competing in a particular industry, but the key analytical distinction comes in the flow of
value between the supplier and consumer.
Value chain and supply chain concepts are also concerned with product differentiation and
timeliness of delivery. These factors are major determinants of a commodity’s final market
price and the total value that can be divided between participants in the production and
marketing system. Seasonality is an especially important factor in agriculture since the prices
of most farm commodities are cyclical depending on world production and patterns in
consumer demand. Quality differences are likewise an important source of competitive
advantage as is the ability of a country to supply guaranteed minimum quantities according to
a specific time schedule.
Beginning at the farm level, therefore, climatic suitability and grower profitability are merely
the first (and most obvious) considerations in developing a diversification programme. The
viability of any new enterprise also depends on the acquisition of specialized skills, the
efficiency of input supply and availability of credit. Depending on the commodity,
investments in irrigation and greenhouse construction or plastic tunnels may also be required.
Perennial tree crops like tea, coffee and macadamia nuts likewise demand special attention to
cash flow requirements before the crop produces its first revenue.
Beyond the farm level, many other aspects of competitive value chain development must also
be addressed. These include access to post-harvest handling facilities, efficiency of
transportation networks, ability to amass sufficient quantities to attract buyer interest and
adherence to international standards for horticulture and livestock products in particular. The
scope for competitive development is also determined by competition with other producers of
the same product, both at the international and domestic levels.
10
Taken together, these challenges mean that developing new agriculture value chains as an
alternative to tobacco is unlikely to be easy or fast. One of the most successful examples from
the case studies below is the story of banana production in Schroeder, Brazil where farmers
were able to make a complete transition from tobacco. By joining forces with each other and
enlisting government institutions and private traders, the farm community was able to
develop a competitive value chain for this commodity. At the same time, however, tobacco
was never a major crop in Schroeder and much of the infrastructure required for bananas was
already in place to serve other growers (11).
11
III.
COUNTRY-LEVEL ISSUES AND ANALYSIS
Having set out some contextual issues around the analysis of crop alternatives, this section
now looks in closer detail at the diversification opportunities and experiences with new crops
in selected countries. Diversification opportunities vary greatly between countries and
regions depending on local growing conditions, market infrastructure, availability of land per
capita and many other factors described above. The purpose of these case studies therefore is
not to provide a comprehensive roadmap or policy prescriptions for developing alternative
crops, but rather to sketch out some practical issues and lessons from past experience that can
help to evaluate current opportunities.
The countries covered here are Indonesia, Zimbabwe, Malawi and Brazil, which together
produced around 1.2 million tons of tobacco in 2005 or about 19% of the world total. A brief
discussion of China, which is by far the world’s largest tobacco grower, is also included, but
this analysis is more narrow because of the limited availability of data. Finally, the section
concludes with a description of the diversification experience in Canada and lessons for other
countries in promoting crop substitutes and other economic alternatives to tobacco.
A.
Indonesia
The first case study is drawn from a supply-side analysis of Central Java.1 This work
considered how the financial costs and returns for tobacco compare with a range of crops that
either complement tobacco or offer substitution potential. Although Indonesia’s economy is
incredibly diverse already, tobacco is a dominant crop in some locations and contributed
around $274.9 million in gross export earnings in 2001. Roughly 175,000 hectares were
planted with tobacco in 2002. Other than Central Java, tobacco is also important in East Java,
Lombok and North Sumatra.
Tobacco production
There are two main types of tobacco produced in Central Java including a type of sun-cured
Virginia tobacco grown mostly in upland areas with a mild climate and a second type of
tobacco grown mainly in the lowlands where the climate is hot and tropical. More than 98%
of Virginia tobacco is used domestically to manufacture kretek cigarettes, in which the crop is
blended with cloves and other aromatic ingredients. Local consumers are the largest market
for Indonesian kretek cigarettes, but the product still accounts for around 4% of total
agriculture exports. Lowland tobacco, on the other hand, is more than 98% for export and is
mainly sold on a pre-negotiated basis to manufacture cigars.
One particularly important characteristic of Central Java agriculture is that most farm sizes
are extremely small, with only about 0.25 to 0.5 hectares total farmland available to
individual households. Landholdings are perhaps slightly larger in upland areas compared
with the lowlands, but a clear challenge for all farmers in Central Java is to seek the
maximum income from a very small parcel. This factor is important to keep in mind since no
matter how attractive the rates of return are from an alternative investment, there is still a
need for a high-income crop to be included as part of the rotation. Tobacco has traditionally
1
This case study is based on work by Keyser and Juita (12).
12
played this anchor role in many densely populated areas and any successful diversification
strategy will need to ensure at least as much farmer income over the long term.
Upland farming systems
It is also important to note that tobacco in Central Java is only one part of a complex rotation
of different crops. In the upland tobacco areas, Virginia kretek tobacco may be considered the
foundation crop around which most other agriculture activity revolves, but is still grown
during just one of three crop rotations per year and many other farm and non-farm enterprises
are also important to each household’s livelihood. There are many variations to the basic
pattern, but a typical practice is to follow tobacco almost immediately with corn, soybeans or
some other relay crop that grows well before the start of the heavy rains. Then, when that
crop (or crops) is harvested, a second rotation of mixed intercrops such as garlic, green beans,
cabbage or onion is planted depending on the length of maturity for each product and the time
available before the next tobacco cycle must begin, either on the same land or on another part
of the farm holding (see Box 1).
13
Less traditional crops are also being introduced in upland areas, including potatoes and
perennial crops like oranges, coffee and nilam, which can be grown either as a permanent
intercrop or pure stand on existing tobacco land.1 Because Virginia tobacco is mainly
1
Nilam is an herbaceous plant that produces patchouli oil used by the cosmetics industry.
14
produced on volcanic mountains with a rough topography, irrigation is not normally possible
in upland areas, which does impose some restrictions on crop opportunities. Conditions also
vary greatly with elevation in that more elevated areas generally produce a better quality
tobacco and are more suitable for certain rotation crops than others. Most upland tobacco is
grown by independent smallholder farmers rather than by a large estate.
Lowland farming systems
In the lowland areas where a type of wide-leaf tobacco is grown to manufacture cigars, a
completely different production system is in effect. In this case, tobacco is essentially the
reserve of a large parastatal company known as PTPN-X.1 Importantly, this company does
not actually own any of its own land for tobacco and instead manages a system established by
the Dutch colonial administration in which it leases land from individual smallholders on a
rotating basis. According to the terms of these agreements, the company assumes full
responsibility for all aspects of crop production, including the procurement of inputs,
construction of temporary irrigation canals and pumping stations and mobilization of hired
labour. The company then buys the tobacco from each landowner for an agreed price (with
minimum yield and quality guarantees) and pays an allowance to the landowner to recover
their fields when the system is moved to another location.2
Implicit to this system of rotation farming, small landowners in lowland areas only have the
opportunity of leasing their land for tobacco production once every three to four years
(equivalent to some nine or twelve crop cycles). Depending on the farmer’s access to
irrigation, typical crops grown in lowland areas at other times include rice, soybeans,
groundnuts and chili. Farmers sometimes also give small areas to nilam, oranges and other
high-value perennials as a way to supplement their income and provide more diverse
earnings. A study of rice farmers in Klaten Regency, for example, found that roughly one
third of total household income comes from rice (including cash sales and household
retentions), one third from other agricultural crops and one third from family remittances and
non-farm sources (13).
Financial analysis
The analysis of farm-level substitution opportunities for tobacco is built around a set of 24
original per hectare crop budgets estimated to reflect actual costs and returns to the best
extent possible. These indicative models are based on 2003 prices and cover Virginia kretek
tobacco and seven other crops that either complement tobacco or are considered to offer
substitution potential. To provide the broadest possible indication of relative costs and
profitability, several production levels were analyzed for each commodity.3 The financial
budgets were used to calculate a wide variety of indicators—covering production costs,
farmer income, returns on expenditure, labour requirements and returns on labour—from
multiple perspectives of interest to individual farmers and development planners alike.
1
Perseroan Terbatas Perkebunan Nusantara X, or Estate Plantation X, Ltd.
During the rainy season, lowland tobacco must be grown under cloth shelters with supplemental irrigation.
Appropriately, this crop is known as tembakau bawah naungan, or TBN, meaning “tobacco under shelter”. In
the dry season, protective shelters are not needed and the crop can be grown in the open. This crop is known as
na oogst and is less expensive to produce, but yields a lower-quality leaf.
3
For Indonesia, these management levels were termed “low”, “medium” and “high”.
2
15
Because fluctuations in yield and price are of direct importance to farmer profitability for all
crops, the break-even points for each enterprise variation was also determined.1
Key indicators for medium input management are summarized below in Table 2. Complete
results covering all three management levels are provided in Appendix 2, which presents a
strong review of the results of this study without turning to the primary source. While the
financial data alone do not show which crops a farmer would choose if tobacco were no
longer an option, they do point to a number of important trade-offs that are useful to consider
in discussing substitution possibilities.
Table 2: Indonesia financial indicators for smallholder farmers, Central Java
(US$/ha, medium input)
Total
Cost Net Profit
Return to Total
Net
Total
Labor Profit per
Cost
(days)
Day
Upland Crops
Potato
VA-Kretek Tobacco
Carrots
Garlic
1,228
1,300
203
897
1,604
983
134
89
1.31
0.76
0.66
0.10
172
693
166
360
9.32
1.42
0.81
0.25
1,604
674
277
240
1,542
787
330
248
0.96
1.17
1.19
1.04
582
440
136
95
2.65
1.79
2.42
2.61
n/a
944
Upland & Lowland Crops
Chili
Nilam (yr 2)
Groundnuts
Corn
Lowland Crops
TBN/Na Oogst Tobacco*
Dry Season Rice**
Technical Irrigation
Semi-Technical Irrigation
Simple Irrigation
Rain fed
Wet Season Rice**
Technical Irrigation
Semi-Technical Irrigation
Simple Irrigation
Rain fed
679
628
523
424
207
169
165
144
3.28
3.71
3.18
2.95
563
513
459
361
144
142
146
105
3.93
3.61
3.15
3.44
* TBN/Na Oogst tobacco is produced by a parastatal company using leased land; the
profit shown here is the guaranteed minimum (including payment for land recovery).
All costs are covered by the parastatal; there is no financial outlay by the landowner.
** Due to the use of a secondary source, cost data were not available for rice.
Source: Keyser (12). All variations assume medium-input management.
With respect to crop substitution, the data are encouraging and suggest that many alternatives
are likely to offer a potential for similar (or better) net profits and rates of return than tobacco.
The results for chili, potatoes, nilam and oranges are particularly encouraging. In terms of
total costs, the data also show that tobacco is relatively expensive to grow, both in cash and
labour terms.2 Compared with other enterprises, only chili and high-input garlic require more
cash before sale than Virginia kretek tobacco.
1
These calculations were made using a goal seek routine holding all other variables constant.
The labor estimates for Virginia kretek tobacco, in fact, need to be reviewed. Due to a specific methodological
consideration working with the local team, the total labor estimate for tobacco includes labor used for land
2
(…continued)
16
Just because other crops can be more
profitable than tobacco however does mean
that these alternatives are necessarily a better
choice. In the first place, the data show that
high-value alternatives are also expensive to
grow and sometimes more costly than
tobacco. Newer crops can also be difficult to
market since the same type of trading
networks do not exist. Total market demand
for each alternative is also much smaller
compared with tobacco, so that no one
enterprise could ever be expected to substitute
completely. For this reason, farmers may want
to scale back on tobacco as efforts to reduce
smoking take effect, but are likely to find it
difficult to give up producing the crop
entirely.
From these data, the original report concluded
that agricultural planners would do well to
focus on developing the specialized support
services and private trading networks
smallholders need to succeed with new
enterprises. Especially in the case of
perennial crops with a long maturity
period, any shift from tobacco can be
difficult and risky in terms of high
establishment costs and limited access to
long-term credit. From the farmer’s
perspective, substitute crops can easily
appear to have less certain cost structures,
unknown market outlets and possibly even
a less certain future compared with
tobacco. Considerable efforts are therefore
required to develop new markets and
support services, but this must be done
only on the basis of true underlying
competitiveness rather than just for the
sake of promoting an alternative to
tobacco.
Other than tobacco, the study divides
alternative crops into three broad
categories including staple crops (rice,
corn and groundnuts), horticultural crops
(chili, potatoes, carrots and garlic), and
perennial crops (nilam and oranges). First,
preparation that benefits other crops in the rotation. A better approach would have been to pro-rate this cost
among other enterprises that also benefit from the labor used for tobacco.
17
with respect to staple commodities, the data show this group of products only provides about
28–37% as much total income compared with upland and lowland tobacco. For this reason, it
is unrealistic to expect such commodities could ever substitute for tobacco in terms of total
cash income. Any loss of tobacco revenue from shrinking tobacco markets simply must be
made up for by some higher-value commodity. Rice, groundnuts and corn, together with
other staple rotation crops like soybeans, certainly do play important roles in terms of their
contribution to household food security and maintenance of soil fertility, but are not enough
on their own to compensate for any real loss of revenue from tobacco.
Of the horticultural crops, the four commodities covered by the analysis include some of the
highest and lowest value products. At specific management levels, for example, chili and
potatoes far surpass tobacco in terms of the potential for total income and attractive returns to
cash costs and family labour. On the other hand, the financial indicators for carrots and garlic
are some of the poorest results compared with all other enterprises and show that these
specific products yield very little profit and poor rates of return at most management levels.
With respect to perennial crops, the data suggest that nilam and oranges have good potential
to surpass tobacco in terms of total farmer income and attractive rates of return. Success with
a perennial enterprise however depends on being able to afford the initial establishment costs
before the crop comes into production. Intercropping with tobacco, rice and/or other seasonal
commodities can help smooth the cash flow requirement, but farmers must still weigh the
potential returns in an uncertain market against the immediate need for cash from a known
crop like tobacco. Unlike staple and horticultural crops, which are normally grown in rotation
with tobacco, any land given to a perennial enterprise automatically takes away from the total
space available for tobacco rotations, although intercropping on a diminished scale is still
possible.
Finally, in terms of protection from shrinking tobacco markets, the data suggest that average
farm gate prices for upland tobacco could fall by some 46–76% from the assumed levels
before the crop would return a financial loss. Although Indonesia’s ability to compete in
world tobacco markets also depends on the costs of production compared with other tobacco
growing countries, this finding is important and suggest that tobacco is likely to remain an
attractive crop under progressively difficult market conditions for some time to come. This is
not to suggest that Indonesia can afford to be complacent in promoting new enterprises, but
the relatively robust results for tobacco do suggest that time may be on the farmer’s side as
the country begins to develop new production and market alternatives.
B.
Zimbabwe
The second case study was completed in 2001 and considers the financial costs and returns
for tobacco and twelve other important crops grown by commercial and smallholder farmers
in Zimbabwe.1 Like the analysis of Indonesia, this study is based on a set of original
production budgets designed to reflect actual costs and returns to farm production in tobacco
growing areas to the best extent possible. These budgets cover Virginia flue-cured tobacco
(VFC), burley tobacco and 12 other crops that either complement tobacco or offer
substitution potential, including traditional field crops, high-value alternatives and
horticultural exports. As in Indonesia, three levels of progressively intensive management
were considered.
1
This case study is mainly drawn from Keyser (14).
18
Importance of tobacco
Zimbabwe has long been one of the world’s leading producers of VFC tobacco. Historically,
the crop generated around US$ 400 million to 600 million in foreign revenue annually, equal
to almost 10% of GDP and 30% of total exports. More recently, of course, Zimbabwe’s
economy has undergone extreme decline and is still in a virtual tailspin. In 2001–02, the
Government designated over 5300 landholdings for compulsory acquisition and resettlement.
Since then, total tobacco production decreased from around 200 million kg of VFC tobacco
during most of the 1990s, to only 75 million kg in 2005 and just 55 million kg in 2006. The
2004–05 crop was worth only US$ 118 million in total exports (15).
The analysis described here took place before the impact of these events on agricultural
production (and tobacco in particular) was evident. Although this means that the cropping
systems that were modeled by and large no longer exist in Zimbabwe, the analysis is still
relevant to the discussion of crop alternatives. Before the crisis, for example, Zimbabwe had
one of the best developed agriculture sectors in southern Africa and other countries of the
region can certainly use these data to help assess what is possible with good management and
investment. This is particularly true for Zambia and Malawi which enjoy similar climatic
conditions. As discussed in the next case study, Malawi is severely constrained by a shortage
of land per capita and so faces many specific challenges related to its population density, but
this is not a problem for Zambia.
Additionally, from a regional perspective, it is apparent that neighboring countries have paid
a high price for the economic instability in Zimbabwe, but are also benefiting from the inflow
of commercial farmers. Tobacco output in Zambia, for example, has grown by over 360% in
just the past few years largely due to investment by former Zimbabwean producers (see Box
2). Parts of Manica Province in Mozambique near the Zimbabwean border have also seen an
increase in tobacco production together with other traditional field crops like maize and
soybeans.
19
Box 2: The boom in Zambia’s tobacco exports
Zambia’s tobacco exports rose to nearly 52 million kg in 2005, up from 14.3 million kg the
year before. At the start of the marketing season, tobacco was expected to earn US$ 83
million, up from US$ 26.7 million in 2004. Around half of the 2005 crop was VFC tobacco
grown by commercial farmers and the other half burley grown by smallholders.
Zambia’s burgeoning tobacco industry has expanded quickly; in 2000, production was at
just 3.4 million kg. According to Tobacco Association of Zambia (TAZ) executive director,
Jewette Masinja, “fresh investments by farmers, mainly from Zimbabwe, and the
introduction of good agriculture practices by Zambian farmers learning from the
newcomers had led to the rise in tobacco production.” For the past few seasons, there
have also been reports of smallholder cotton farmers switching to burley tobacco, which
has become more profitable.
In a related development, Masinja also noted that “a weak US dollar and a strong South
African rand meant the [2005] tobacco crop would not be very competitive on the
international arena…Zambia tobacco farmers are paid in U.S. dollars while they import
most of their pesticides and other farming inputs from South Africa, paying in rand”. The
Kwacha exchange rate has since normalized, but as Masinja explains, “these pressures
have continuously increased the overall cost of production in the last three years.
Increased finance charges, transport costs, marketing, exchange rates, and taxes all have
a serious effect on growers.” – Based on update of original article: Reuters 9 March 2005
(16).
In reading the Zimbabwe case study, therefore, one important feature of the data is that the
numbers may, at least to a certain extent, be interpreted as rough proxies for conditions in
neighboring countries. The absolute price levels will of course be different than shown, but a
similar relation between costs and profits has been found to exist in Zambia and Malawi, at
least at certain points in time.1 In Mozambique, Zimbabwean tobacco growers have generally
had a harder go with tobacco because of unexpectedly adverse growing conditions and a
poorer business environment. For these reasons, the data are probably not a good indication
of what can be achieved there and the special circumstances for Malawi are also discussed
below.
Zimbabwe’s tobacco farm systems
In geographic terms, tobacco in Zimbabwe was (and still is) grown almost exclusively in
high-potential farm areas of Natural Region II in north-eastern and central regions. This zone
accounts for less than 15% of Zimbabwe’s total land area, but is ideally suited to intensive
farming, with a more or less reliable 750 to 1000 mm of rainfall coming in the summer
months from late October until mid-March. Before the land redistribution, large-scale
commercial farmers occupied almost 63% of this high potential farmland. Although there
were fewer than 2000 commercial tobacco growers, they accounted for about 87% of area
planted to tobacco and 95% of the total crop, equal to some 180 to 240 million kg of fluecured tobacco annually.
1
See Keyser, Grey and Scott (17), Keyser and Lungu (18) and Keyser (14), (19) and (20) for data from Malawi,
Zambia and Zimbabwe. Also see Mataya and Tsonga (21) for data from Malawi.
20
Another important characteristic of Zimbabwe tobacco production is that most growers
already had diversified sources of income. Tobacco was indeed the backbone of commercial
agriculture in many locations, but other important crops for large-scale farmers included
wheat, soybeans, maize and groundnuts, which were typically grown with tobacco on a 5year rotation, as well as livestock. Moreover, throughout the 1990s, many commercial
tobacco farmers introduced high-value crops like export roses, supermarket vegetables,
paprika and coffee specifically to lessen their dependence on tobacco. More than 80% of all
horticultural exports, for example, were grown on tobacco farms and were first developed
using tobacco revenue. Farmers met during this study all said the reason for introducing
horticulture was to lessen their dependence on tobacco.
Smallholder farmers, by comparison, were (and still are) only marginally involved in the
direct production of tobacco. At the start of the Zimbabwe crisis, there were roughly eight
times as many smallholder tobacco growers (about 16,000 in total for burley and flue-cured
tobacco) compared with large commercial farmers, but these accounted for less than 1.5% of
all smallholder households and just 7% of those in suitable agro-ecological zones. In this
respect, the greatest threat from shrinking tobacco markets for smallholder agriculture was
rightly identified in 2001 not so much as the potential loss of direct farm income, but the loss
of remittances sent by family members employed by large-scale commercial producers.
Because of how events in Zimbabwe unfolded, there was a loss of income from tobacco, but
which had absolutely nothing to do with tobacco control measures.
Financial analysis
Putting aside political and economic developments, the analysis is once again encouraging
from a crop substitution point of view and shows that several commodities other than tobacco
offer an opportunity for high producer profits and attractive rates of return with the right kind
of investment and planning. Other crops that rival or surpass tobacco for potential net profit
include roses, paprika, coffee and supermarket vegetables for large-scale commercial farmers,
and paprika, coffee and cotton for smallholder growers. On the other hand, these alternatives
were also found to be relatively expensive and, with high-input management, sometimes
more costly than tobacco. This is particularly true for high-value horticultural crops like
roses, which is a completely different type of investment from extensive agricultural crops
and can only be grown over a few hectares at most by highly skilled specialists. A summary
of the financial indicators for commercial and smallholder farmers is given in Tables 3 and 4
below; the full set of indicators is presented in Appendix 3.
21
Table 3: Zimbabwe financial indicators for large commercial farmers
(US$/ha, high-input)
Total costs
Net
profit
Return to
total
costs
4,765
2,827
2,046
1,542
765
504
385
286
286
261
31
(8)
(89)
1.39
0.81
0.69
0.60
0.53
0.36
0.35
0.24
0.23
0.21
0.04
(0.01)
(0.10)
Total
Net
labor
profit
(days) per day
Irrigated Crops
Paprika - long season
Tobacco, flue-cured
Coffee (USD 2,000mt)
Paprika - short season
Export veg - mange tout
Export veg - baby carrots
Wheat
Cotton
Groundnuts
Marigold
Export veg - baby corn
Soybeans
Maize
ROSES - auction sales
Roses (long stem)
Roses (medium stem)
Roses (short stem)
3,439
3,473
2,954
2,560
1,435
1,396
1,115
1,205
1,228
1,223
872
780
927
212,815
226,542
222,166
50,228
32,154
16,964
0.24
0.14
0.08
310
497
375
270
295
275
21
278
135
136
190
24
50
9,360
9,360
9,360
15.4
5.7
5.5
5.7
2.6
1.8
18.3
1.0
2.1
1.9
0.2
(0.3)
(1.8)
5.4
3.4
1.8
Dryland Crops
Tobacco, flue-cured
Groundnuts
Soybeans
Maize
2,930
737
561
610
Source: Keyser (14).
22
2,082
110
30
(34)
0.71
0.15
0.05
(0.06)
437
83
14
27
4.8
1.3
2.1
(1.3)
Table 4: Zimbabwe financial indicators for medium and high-input
smallholder farmers (US$/ha)
Activity
Total
costs
Net
profit
Return
to total
costs
Family
labor
(days)
Total
labor
(days)
Net Profit
Net profit
per day
per day
family labor total labor
Communal and Resettlement Farmers (medium input)
Paprika
Coffee (USD 2,000mt)
Tobacco, flue-cured
Tobacco, burley
Cotton
Groundnuts
Soybeans
Maize
340
234
637
542
173
106
107
116
715
666
571
408
259
144
105
15
2.10
2.85
0.90
0.75
1.50
1.35
0.98
0.13
150
150
150
150
115
90
60
72
260
210
320
315
145
90
60
72
4.76
4.44
3.81
2.72
2.25
1.60
1.76
0.21
2.75
3.17
1.78
1.29
1.79
1.60
1.76
0.21
150
150
150
150
120
120
70
100
480
300
310
390
170
120
70
125
10.55
8.37
6.89
3.57
2.32
1.47
1.76
0.99
3.30
4.18
3.33
1.37
1.64
1.47
1.76
0.79
Small-scale Commercial Farmers (high input)
Tobacco, flue-cured
Paprika
Coffee (USD 2,000mt)
Tobacco, burley
Cotton
Groundnuts
Soybeans
Maize
1,514
872
567
994
295
157
153
310
1,582
1,255
1,033
536
278
176
123
99
1.04
1.44
1.82
0.54
0.94
1.12
0.81
0.32
Source: Keyser (14).
For large commercial farmers, the data show
that many traditional agricultural crops,
including wheat, soybeans, groundnuts and
maize, had become marginal activities at the
time of the 2001 study and, in some cases,
even returned a net loss and failed to cover
long-term depreciation of fixed assets. On
the other hand, these traditional crops were
also found to provide a positive gross
margin and could therefore be important in
terms of helping to finance other more
profitable and expensive crops like tobacco,
paprika and coffee from a cash flow
perspective. In turn, the very good profits
from these high-value enterprises help to
offset the net losses from traditional field
crops and the analysis clearly shows that
tobacco and other high-value crops work
best when grown as part of a mixed farm
system.
For smallholder farmers, the opportunities to earn high profits from crops other than tobacco
are more limited. Paprika, coffee and cotton do, at certain management levels, offer a
potential for more income compared with burley tobacco and flue-cured tobacco, but these
crops each have their own limitations. In the case of paprika, which is the most profitable
smallholder alternative, yields are highly dependent on rainfall and can easily be wiped out
by adverse growing conditions. Whereas large-scale farmers are able to protect themselves
23
from this risk through irrigation, smallholder farmers in southern Africa rarely have this
capacity and paprika is typically regarded as a risky enterprise for this sector. Coffee is
likewise an attractive possibility that could provide a net income that rivals many tobacco
scenarios, but is a relatively new crop and would require a substantial investment in farmer
training and pulping and processing facilities before it can be widely promoted. With respect
to cotton, this enterprise generally provides a much lower income that tobacco (except
compared with some levels of burley management), but does offer an excellent rate of return
to cash and total production costs. At the national level, cotton is the most widely grown
smallholder cash crop.
For all categories of farmer, the analysis
reveals that the most profitable crops and
management systems also require
specialized
infrastructure.
This
is
especially true with respect to roses and
supermarket vegetables like baby corn,
baby carrots and mangetout peas, which
can be very profitable, but are also
expensive to grow and highly skill
intensive. In addition to field costs, value
chain development for these enterprises
requires large capital investments in
processing and packing facilities, special
irrigation
equipment
and
other
infrastructure including greenhouses and
insulated trucks for roses and EurepGAP
and Hazardous Analysis and Critical
Control Point (HACCP) accreditation for
vegetables.1 Some large vegetable
exporters were working with smallholder
farmers near Harare to provide inputs and
develop a network of collection points for baby corn and mangetout peas, but these
programmes were generally expensive to establish and still relatively small, with only
limited farmer participation, when the original study was prepared.
Marketing constraints are therefore clearly one of the main obstacles to success with many
high-value crops that could compete with tobacco for profitability and export earnings.
Again, this is most obvious in the case of roses and export vegetables, which must be grown
to exacting standards and delivered in fresh condition according to tight schedules. Paprika is
generally more forgiving and can be sold to local export agents and processors on forward
contract. This helps to minimize many important production and marketing risks, but total
world demand is only around 120 000 tons annually and paprika could never come close to
substituting for tobacco on its own.
In terms of labour requirements, the data show that tobacco generates more employment
opportunities per hectare than nearly every other enterprise analysed. This is one factor often
1
These certifications are required by European supermarket chains, if not necessarily for formal EU market
entry. By contrast, United States law requires a full pest risk assessment (PRA) be carried out for all new
vegetable products.
24
noted by proponents of tobacco to illustrate the overall importance of the crop to the national
economy, and calculations carried out for the Zimbabwe study revealed that the total annual
wage bill for commercial tobacco was likely to be around US$ 47.1 million.1 As noted, a
large share of that income was sent as remittances to family members in communal areas,
thereby giving tobacco an important role in helping to finance food and non-tobacco cash
crops on smallholder farms. From the smallholder’s perspective, it should also be noted that
the income from tobacco is far greater than the value of any food crop that could be grown on
the same parcel of land (see Box 3).
1
Estimate based on average per hectare wage bill for large-scale commercial VFC tobacco of ZW$ 34 053
(US$ 619.14) multiplied total area planted in 2000 (76 110 hectares).
25
Box 3: Returns to labor and the trade-offs of tobacco production
An argument that is often made in the literature about opportunities for reducing tobacco
cultivation is that tobacco’s very high labour requirement distorts a farmer’s perceptions of
income and net profitability. A work in progress on Bangladesh (22), for example, notes that
contrary to popular notions about tobacco being a lucrative crop, studies have found that
farmers rarely count family labour and tobacco would lose much of its profit margin if this
were take into account. An earlier published article on Kenya by Kweyuh (23) argues much
the same case by quoting a farmer who says that he stopped growing tobacco on his twoacre plot when he realized that he was left with minimal profits once the cost of extended
family labor was taken into account.
The estimation of an accurate opportunity cost for family labour for a smallholder enterprise
can indeed be a tricky business. According to the standard economic definition, this value is
equal to the foregone income that could have been earned if labour had been used to grow in
the next most profitable crop. Perhaps more clearly, this means that if a farmer decides to
grow tobacco instead of beans, the cost of his labour should be measured by the daily
returns from bean production.
On this basis, one specific and very easy way to look at the returns to labor in crop budget
analysis is to hold the value of that input equal to zero for all enterprises and reinterpret crop
profits as the returns to labor. Since family labor does not get charged in any budget,
comparisons between enterprises can be made directly by looking at the daily returns to
family labor (net profit/days worked). The calculations by Keyser for Indonesia, Zimbabwe
and Malawi all follow this methodology. Taken together, these data show that tobacco does
not always provide the best daily return compared with other enterprises, but neither does it
provide the worst or anything like a net loss as some of those writing against tobacco have
claimed.
Arguments have also been put forward by Kweyuh and others that the high labour demand
for tobacco takes away from time that could otherwise be spent on food production, and, by
extension, that tobacco production actually contributes to food insecurity.
While the decision to cultivate any cash crop compared to a subsistence commodity naturally
involves some risk for a small farmer if the yield or price should fall, the allocation of labor to
any cash enterprise is not inherently a bad thing. To argue that a farmer is left with only a
small profit misses the point about what can be done with the income and profit that is
earned. If, for example, the income from tobacco can be used to purchase more food than
could have been grown on the same area, or if labor had been used for some other
enterprise, then the farmer has made a rational economic choice.
While this may not always be the case for tobacco, the data summarized in this paper show
that tobacco is likely to provide enough income to purchase more food than could have been
grown on the same parcel. This is illustrated in the table below using data from Zimbabwe in
which the profits from tobacco are converted to volume equivalents of maize at three different
price and yield levels.
Net Profit
($/ha)
Flue-cured tobacco
High
Medium
Low
Burley tobacco
High
Medium
Low
INCOME FROM TOBACCO
Equivalent value in maize (tons/ha)
$120/mt
$150/mt
$200/mt
Maize Yield
at Same Mgt.
Level (tons/ha)
835
571
433
6.96
4.76
3.61
5.57
3.81
2.89
4.18
2.86
2.17
2.00
1.25
0.83
543
408
190
4.53
3.40
1.58
3.62
2.72
1.27
2.72
2.04
0.95
2.00
1.25
0.83
26
Finally, with respect to vulnerability to variations in price and yield, the results from
Zimbabwe are similar to those from Indonesia and show that tobacco is one of the most
robust crop options available and can provide good financial returns even after a large drop in
yield or price. This does not take away from the importance of developing long-term crop
alternatives, but it does again suggest that time is on the tobacco grower’s side while
investments in alternative enterprises are being made. The data in Table 5 help to illustrate
this point by showing how much yield or price could decrease from the assumed levels before
each enterprise would return a net profit equal to zero.
Table 5: Zimbabwe sensitivity indicators for yield and price (medium
management, dryland unless indicated)
% change in yield
to net profit = 0
% change in price
to net profit = 0
Large-scale commercial
Flue-cured tobacco (irrigated)
-48%
-42%
Flue-cured tobacco
-45%
-39%
Paprika (irrigated)
-41%
-38%
Coffee (irrigated)
-34%
-31%
-6%
-5%
Soybeans
+16%
+15%
Maize
+24%
+20%
Flue-cured tobacco
-58%
-50%
-45%
Burley tobacco
-50%
Cotton
Communal farmers
-68%
Paprika
-70%
Coffee
-84%
Cotton
-64%
Maize
-14%
-81%
-60%
-11%
Source: Keyser (14).
27
C.
Malawi
The next case study looks at Malawi, which is one of the most heavily tobacco-dependent
economies in the world.1 The importance of tobacco to the Malawi economy is actually quite
difficult to exaggerate. The crop currently accounts for some 60% of Malawi’s total export
earnings, 23% of its tax base and 13% of GDP. Or, as one report in 2003 vividly put it,
“many of Malawi’s cities have been built by tobacco wealth and most of the few signs of
‘prosperity’ one sees in the rural areas (such as tin roofs, bicycles, and radios) have been paid
for by tobacco-related incomes.”2 Earlier this decade, Malawi surpassed United States and
became the world’s largest exporter of burley tobacco.
For these and other reasons, Malawi is regarded as one of the most vulnerable countries to the
threat of shrinking tobacco markets. Unlike Zimbabwe, where fewer than 2,000 large
commercial farmers (and their workers) were involved in tobacco production, the situation is
quite different in Malawi where an estimated 315 000 to 330 000 smallholder households
grow tobacco on plots ranging in size from 0.1 to 0.3 hectares. Small-scale producers now
account for 70% of Malawi’s total tobacco output and, nationally, one in five Malawian
households derive a substantial share of their cash income directly from tobacco. In 2002,
Malawi officially recorded 138.2 million kilos total tobacco production, including 125.4
million kg of burley tobacco (91%), 11.2 million kg of flue-cured tobacco (8%) and 1.6
million kg of dark western types (1%).3
Historic context
Until the late 1970s, tobacco production was restricted in Malawi to an elite group of largescale growers who owned or leased estate land. These farmers were permitted to sell their
tobacco directly to international buyers at officially recognized auctions. Smallholder
farmers, on the other hand, were limited in the varieties of tobacco they could grow and were
mostly required to sell to government agencies at prices below prevailing market levels.
During the 1980s, the situation began to change when a class of medium-scale entrepreneurs
was allowed to acquire leases on customary land to establish “estates” (typically 10-20 ha) to
grow burley or flue-cured tobacco and to sell their tobacco directly through auction rather
than a government agency. The situation eased further in 1993 with the introduction of
tobacco sales quotas to groups of smallholder farmers, who were organized into “clubs” and
allowed to sell through a programme of intermediate buyers meant to facilitate the logistics of
bringing the smallholder crop into the auction (8).
Smallholder farmers responded quickly to the policy reforms with up to 200 000 smallholders
taking up tobacco cultivation by 1996 and over 300 000 households involved in tobacco
cultivation today. Research during the early liberalization period revealed the relatively high
profitability of tobacco cultivation compared with most other cash and food crops, but also
pointed to problems with the estate sub-sectors and suggested that a number of these
enterprises might not remain viable should tobacco prices fall significantly. Burley tobacco
has for a long-time dominated Malawi’s tobacco sector and grew from 68% of total
production in the early 1990s to more than 90% of total production today. The burley crop is
1
This section is based heavily on work by Jaffee (8). It also draws on Mataya and Tsonga (21), FAO (24) and
Keyser (18).
2
(8, p. 3-4).
3
(8, citing production figures credited to the Tobacco Control Commission).
28
physically well suited to smallholder production and has the advantage of being air cured and
so does not require firewood, charcoal or coal for post-harvest treatment.
As burley production grew during the 1990s, flue-cured tobacco decreased from 27.3 million
kg at the start of the 1990s to just 11.2 million kg in 2002. Whereas burley tobacco is mostly
a smallholder crop, flue-cured tobacco is primarily grown by medium and large-scale estates.
As the earlier research warned, sharply reduced prices in the late 1990s rendered many of
these farms unprofitable and several long-standing commercial producers either ceased
production of flue-cured tobacco altogether or greatly reduced their plantings.
Current situation
During the last few years, many of the concerns about the viability of burley estates and
smallholder profitability also seem to have come to fruition. Many estates have simply ceased
burley tobacco production, having experienced problems of labour abandonment and the sale
of their tobacco by farm tenants and/or estate managers to intermediate buyers or others.
While no hard statistics are available, Jaffee (8) estimates that some 40–50% of estates that
had been producing tobacco in the early 1990s have since given up production or scaled back
their operations.
In the smallholder sector, farmers likewise seem to have been affected by declining
profitability for reasons related to price, productivity and quality. Financial analysis of
smallholder tobacco systems in 1990s found that profitability and rates of return from
tobacco can improve several times over with better on-farm management compared to
average practices. Marketing is also an important constraint in that smallholder growers still
have only indirect access to the auction. Intermediate buyer systems are much less profitable
compared with direct auction sales and the challenge of linking farmers more closely to the
market is still an important issue (18). In early 2006 proposals were introduced to establish a
network of rural commodity exchanges that would allow farmers to sell their tobacco
directly, but it was later concluded this would be impractical.
From a policy and business environment perspective, many other factors behind the
diminishing profitability of tobacco can also be identified (8). These include:
•
exchange rate movements, which have sometimes fluctuated to the
detriment of farmers;
•
rising costs associated with transport, handling and auctioning;
•
high international transport costs for exports, which are particularly
significant for Malawi as a landlocked country;
•
very high auction fees, at 3.95% of gross revenue (compared to 2.4% in
Zimbabwe);
•
a variety of institutional cesses charged by state and industry bodies that
amount to some 3.58% of gross revenue.
Alternative enterprises
29
It is clear that the profitability and
competitiveness of Malawian tobacco are
important to the viability of Malawi's
economy. Equally, however, it is also
important to look at longer term crop
alternatives that could begin to substitute
for some of the household income and
export revenue currently accounted for by
tobacco. As set out in the other case
studies, one of the best ways to do this is to
compare the underlying costs and
profitability of existing and potential
enterprises. This type of analysis does not
show how farmers could best allocate
resources between enterprises or what type
of competitiveness constraints need to be
overcome for successful development, but
does help identify areas where new growth
could be most likely to emerge.
In Malawi, a number of studies have gone beyond simple financial calculations and looked at
underlying economic efficiency using the Policy Analysis Matrix (PAM)-based shadow
prices and scarcity values. Nakhumwa (25), Jansen and Hayes (26) and Keyser (18) all used
the PAM and other methodological tools to look at the costs and returns to tobacco and many
other commodities. Each of these reports has been summarized in good detail by Mataya and
Tsonga (21) which is one of the best reports to look at for a broad overview of Malawi’s crop
alternatives. The partial data set from Keyser’s analysis is presented in Appendix 4 and key
results are highlighted in the accompanying text boxes.
In the study by Nakhumwa, maize (local and hybrid), groundnuts, burley tobacco, cotton,
sorghum and soybeans were evaluated with respect to their domestic and international
prospects and comparative advantage at three technological levels: smallholder, low-input
and high-input estates. Findings in this study indicate that paprika, tobacco, groundnuts and
soybeans can all be produced very efficiently and enjoy strong economic comparative
advantage. Results also show that Malawi has no comparative advantage in the production of
maize for export, but can grow the crop efficiently as an import substitute.1
Jansen and Hayes (26) took the PAM methodology a step further and developed a Multiple
Objective Policy Analysis Matrix (MOPAM) that attempted to rank different enterprises from
a variety of perspectives. In addition to economic efficiency, the criteria applied for this
analysis included drought tolerance, price variability, income generation, food security,
employment creation and diversification potential. Each factor was assigned a weight,
depending on the importance of that factor for the commodity under consideration. This
analysis was carried out for 28 commodities and ranked macadamia, estate coffee, cassava,
Irish potato, smallholder tobacco, estate flue-cured tobacco, dark fire tobacco and paprika at
the top of the list in that order. At the bottom of the list, the least attractive crop options were
identified as green pepper, local maize, cabbage, onion, cotton, rape (Chinese cabbage),
1
Results reported in Mataya and Tsonga (21).
30
sunflower and soybeans. Smallholder burley tobacco ranked 17 on the list of 28 commodities.
(21)
Keyser’s analysis of Malawi (18) covers 26 crops and livestock products. This study used the
PAM to calculate various measures of social efficiency and policy transfer, and ordinary crop
budgets to estimate private returns, rates of return and returns to labour. Again this study
found that Malawi is very efficient in the production of many agricultural commodities, but
this was mainly due to high transportation costs and the natural protection Malawi enjoys as a
landlocked country from competition with imports. Most import substitutes were found to be
far more efficient than exports.
Even more important from a poverty alleviating point of view, the analysis found that most
crops in the smallholder sector provide extremely poor financial profits. For example, only
eight of 20 different enterprises were found to return more than US$ 65/ per hectare with
average management, and just five activities provide more than US$ 327. These poor results
were attributed in Keyser’s study (18), in part, to high input prices following market
liberalization that had an adverse effect on input use, yield and profitability.
The low income-earning potential of
most smallholder crops is further
exacerbated by the small size of area
cultivated, which in most cases is less
than one hectare. This is true with
respect to burley tobacco, even though
the crop was shown to yield substantial
returns relative to other enterprises.
From a diversification perspective,
therefore, it is essential for any new
enterprise to provide a very high income
per hectare and, of course, that enterprise
must be suited to the same climatic
conditions as tobacco. Although cassava
was identified by the MOPAM as a good
alternative, for example, this crop only
yields approximately US$ 150 per
hectare compared with US$ 300 and up
for most tobacco options. Sugar has
likewise been identified as an option for
the large estate sector, but is grown in a
very different climatic zone than tobacco
and must be produced within about 50
km of a processing plant. Similarly, macadamia nuts can be very profitable, but are probably
not a good choice for smallholders since the crop needs to be grown over a large area.
Another interesting result from the analysis is that the profitability of tobacco (and relative
standing of tobacco compared with other enterprises) depends significantly on the type of
marketing arrangement smallholder farmers have access to. For smallholders with direct
access to the auction, Keyser found paprika and tomato were the only crops to provide a
higher net income compared to typical management tobacco. For farmers who must sell
through an intermediate buyer, however, several other enterprises appear to provide more
31
income including rice, cassava, groundnuts and smallholder coffee. In addition to
underscoring the importance of looking for long-term diversification options, these results
point to an immediate need to improve tobacco marketing channels as one of the most direct
routes to increased farm profitability, rural income growth and agriculture competitiveness.
D.
Brazil
The next case study looks at three different attempts to introduce alternative agriculture crops
in the main tobacco growing areas in southern Brazil.1 In sharp contrast to Malawi and
Zimbabwe, Brazil’s economy is already extremely diverse and tobacco accounts for less than
1.5% of total merchandise exports. Even at this level, however, Brazil is now second largest
tobacco grower in the world and largest tobacco exporter. At least in the areas where tobacco
is grown, the importance of the crop should not be underestimated. In 2003, total production
of all tobacco varieties amounted to 648.5 million kg, of which 70% was exported for
earnings of approximately US$ 1.16 billion in gross foreign revenues (11).
Three states in southern Brazil now account for almost 90% of the land devoted to tobacco
and 93% of total production. Most of the remaining production comes from northern states
that mainly supply dark tobacco used for cigars. In order of importance, the main tobacco
producing states in the south are Rio Gande do Sul, Santa Catarina and Paraná. About 78% of
total production in the south is flue-cured Virginia tobacco, the balance is air-cured burley
(11). According to the Brazilian Tobacco Growers Association (AFUBRA), more than 600
localities and some 170 000 to 190 000 growers, mainly small landowners, are involved in
growing tobacco in the south.2 For these families, tobacco is the primary source of cash
income. According the Food and Agriculture Organization of the United Nations (FAO),
tobacco has played a significant role in slowing the pace of rural-urban migration, which is
one of the main socioeconomic problems now facing Brazil (24).
Individual landholdings where tobacco is grown have an average area of 16.8 ha, with 2.6 ha
planted to tobacco, 9.4 ha under other crops and the remainder being pasture, virgin or
replanted forests, dams and fallow areas. About a quarter of the family farms in southern
tobacco growing areas rent land or have sharecropping arrangements with landowners—
contractual arrangements for renting land requiring all those farmers either to grow tobacco
or to leave the farms (25).
Although small by Brazilian standards compared with other crops, the plot sizes of 2.6 ha for
tobacco stand in sharp contrast to the situation in Malawi and Indonesia where tobacco plots
are rarely larger than 0.3 ha. Detailed information needed to describe optimal cropping
patterns from an agronomic and financial point of view for Brazilian (and other) farmers was
not available, but the fact that the average landholding is considerably larger than in other
countries does at least provide more scope to introduce new crops and diversified cropping
patterns. The same issue of needing to provide enough income from the total farm area, of
course, still holds true, but as the farm size increases so too do the opportunities to cultivate
lower-value crops on a more extensive basis.
Obstacles to diversification
1
2
This case study draws extensively from Vargas and Campos (11).
Figures quoted by Vargas and Campos (11).
32
Notwithstanding major concerns that have been raised over the expansion of tobacco farming
in Brazil (see Box 4), Vargas and Campos identify three main barriers to the adoption of
alternative livelihoods in tobacco-producing regions. These include the role of the so-called
“integrated system” in keeping farmers financially dependent on tobacco companies, the role
of local and state governments in supporting and subsidizing tobacco growing and processing
and the high financial returns from tobacco, particularly compared with traditional food
crops.
First, with respect to the integrated system, it is argued that these systems have made farmers
dependent on tobacco, giving them no choice but to produce the crop according the terms
dictated by international buyers. Viewed another way, however, the agreement to supply the
farmer with seed, fertilizer and approved chemicals required for tobacco in exchange for a
promise to buy the harvest for a guaranteed price after subtracting the cost of inputs can be an
effective way of linking poor households to the market. Apart from tobacco, this type of
outgrower arrangement has been used very successfully in other countries for many crops
including cotton, paprika and supermarket vegetables, which are also expensive to grow and
have been described as substitution possibilities for tobacco. The integrated framework
system in Brazil may indeed have many serious problems, but as a priority for long-term crop
substitution, the focus of the debate should be on how to improve this system (possibly as a
model for other crops) rather than to criticize the arrangements as an inherently negative
feature of tobacco.
Second, with regard to public policies, Vargas and Campos observe that the political weight
of tobacco in the regional economy impedes implementation of local public policies aimed at
fostering crop substitution. In the Rio Pardo Valley, for example, it is said that “public
policies reveal more concern for expanding tobacco production than for reducing the crop”.1
Apart from an apparent need for better rules to govern the safe handling of chemicals and
more competitive price-setting mechanisms, however, creating the conditions for expanded
agricultural production is exactly what governments normally should do, rather than curtail
some profitable activity. As illustrated by the diversification experiences below, numerous
state and private organizations are working with farmer groups already to introduce new
commodities. Whether these efforts are sufficient, let alone how they compare with policies
in the tobacco sector, is a question well beyond the scope of this limited discussion.
1
(11, p. 9).
33
Box 4: Corporate and social responsibility for tobacco and other crops
Tobacco production systems in Brazil have come under sharp criticism, most notably in
the 2002 exposé, Hooked on tobacco by Christian Aid (27). Looking at the case of
Souza Cruz in southern Brazil, this report raised many serious concerns related to the
health and safety of family farmers as a result of tobacco production. A follow-up report,
Behind the mask (28), looked in similar terms at Kenya and found many of the same
risks in 2004.
Written as a critique of the activities of international tobacco firms, the reports make a
number of solid points that have added fuel to the calls for crop substitution. The main
arguments relate to the health risks resulting from inappropriate use of pesticides, the
employment of child labour associated with the extensive use of family labour in tobacco
growing and the pattern of dependence on the tobacco company for inputs, input loans
and markets. It is also claimed that farmers could make more money growing food crops
and that tobacco production contributes directly to increased poverty, early death and
even suicide within devastated households.
However, some of the arguments are debatable. Christian Aid offers little comparison of
tobacco with other crops and overlooks the importance of input loans in helping to finance
production. Equally, arguments about poor returns to labour are poorly substantiated.
Although tobacco is certainly a demanding enterprise, the evidence from Indonesia,
Zimbabwe and Malawi discussed here shows that the daily returns from tobacco actually
compare very favorably with many other crops. Unfortunately, Christian Aid offers no
similar data for Brazil or Kenya and relies on anecdotal farmer quotes instead. By
contrast, Vargas and Campos report that 93% of small farmers in southern Brazil regard
tobacco as the most profitable crop and more than 77% believe that other crops would not
give the same financial return for the same allocation of land.
The articles are effective in raising awareness of several important issues. One of the
most obvious problems relates to safe handling of pesticides and inappropriate types of
protective clothing being sold by the tobacco companies in Kenya and Brazil. Nontransparency in price setting and grading of tobacco are also serious issues. Especially
when a farmer has little or no choice regarding where to sell their crop, some protection
must usually be afforded by the state from abusive practices associated with monopsony
conditions. Greater flexibility with input packages, an understanding of cash flow and
labour requirements for other crops and a farmer’s ability to pay off long-term debt are all
areas identified by Christian Aid in which the tobacco industry could and should do a
much better job. Farmers cannot stop growing tobacco overnight, and it is important to
have a productive dialogue on these and other important issues to improve conditions for
current growers to the greatest extent possible. Only in a more open environment will
farmers truly be able to decide what crops are best and how to allocate farm resources in
the most productive way.
Towards this end, an interesting example of industry practice comes from the horticulture
sector, which also uses dangerous pesticides and sometimes involves closed market
linkages between growers and contract buyers. Switching to fruit and vegetable crops
therefore would not necessarily spare small farmers many of the risks that Christian Aid
highlights with regards to tobacco, except that most international value chains for these
commodities demand adherence to industry standards like EurepGAP, Nature’s Choice
and Field-to-Fork, which is not the case with the tobacco industry.
34
Third, on crop profitability, Vargas and Campos draw attention to the same issue identified in
other countries whereby tobacco offers far greater gross and net profits than other basic
commodities. To illustrate this point, the authors use the data reported in Table 6, which
compares the profitability of VFC and burley tobacco with corn and beans. Depending on
seasonal price cycles, subsistence crops saved for home consumption could be more
profitable than shown if valued in imputed terms against the price of purchasing an
equivalent amount of food when local stocks are scarce. However, even on this basis, the data
show that tobacco is far more profitable (and expensive) compared with staple commodities.
This is true when measured in gross and net terms and by the daily returns to labour. Without
debating the costs and benefits of cash and food crop production, therefore, it is at least clear
that the search for viable alternatives to tobacco means looking at high-value commodities
rather than basic foods.
Table 6: Costs and returns for selected crops in Brazil (US$/ha)
Virginia
tobacco
Burley
Corn
Beans
248
57
tobacco
Costs
Variable costs
Fixed costs
1,738
1,344
335
171
171
57
305
Total costs
1,909
1,515
392
2,370
1,879
396
264
455
361
1.51
(42.11)
Total days worked
149
134
22
26
Return per day
3.05
2.69
0.07
(1.62)
Profits
Gross margin
Net profit
Labour
Source: Tobacco Growers Association data quoted by Vargas and Campos (11,
p.11).
Note: The methodology behind the figures is not clear. The difference between
gross and net profit should be equal to total fixed costs, but this is not the case.
More detailed (independent) calculations of total farm costs covering a far wider
variety of enterprises (including other high-value cash crops) is needed to draw
firm conclusions about the relative profitability of tobacco.
However one views the challenges and opportunities for crop diversification, it is clear that
the issue cannot be discussed in isolation from the current costs and benefits of tobacco and
will require concerted efforts by the private sector, government and individual farmers and
35
farmers’ associations to succeed. The development of new value chains with similar (or
indeed better) support systems to those currently available for tobacco is a major challenge
for Brazil and other countries. Against this context, Vargas and Campos offer three examples
of diversification initiatives from which several lessons may be drawn.
Agroecological crops in Santa Cruz do Sul
The first diversification experience comes from the Rio Pardo Valley in Santa Cruz do Sul. In
terms of volume, corn, sugar-cane and cassava, together with tobacco, are the agricultural
mainstays in this municipality. Tobacco production peaked in 1999 at 15.5 million kg, equal
to about 2.5% of Brazil’s total production, and has remained fairly stable around this level in
recent years.
Beginning in the late 1980s the search for an alternative model led to the establishment of
various “agroecological” endeavors based on the principles of organic farming. The primary
aim of this system is to use no pesticides and to minimize the use of all other inorganic
inputs. The first efforts to support agroecological production were undertaken by various
NGOs through technical assistance to family farmers. Since then, efforts to consolidate the
model as an alternative to tobacco have grown, gradually bringing in new diverse local
partners including farmers’ associations, church organizations, municipal governments, more
NGOs and the public extension agency of the state. These efforts eventually gave rise to a
regional cooperative of ecologically-based family farmers known as ECOVALE. Farmer
products, including a wide variety of horticultural crops, erva-mate (Brazilian tea), peaches,
oranges, beans and corn, are sold in fairs and to regional and local supermarkets and
restaurants.
According to Vargas and Campos, estimates of the revenues for small farmers in ECOVALE
show these crops provide feasible alternatives to tobacco in terms of profitability, marketing
and production finance. Citing data from the Center for Small Family Farmers, for example,
an average household is said to earn annual income of $1,560 from agroecological crops
compared with only $937 to $1,182 from burley and Virginia tobacco respectively, based on
an average 2.6 ha plot. Annual incomes from agroecological crops are said to range from
$312 to $4,686, but these estimates are acknowledged to include income from other sources
(whereas the estimates for tobacco are exclusive for that crop).1
While very encouraging from a diversification perspective, several limitations must also be
noted that are important to consider in thinking about the potential for agroecological crops
and other substitutes more generally. In the first place, the financial returns that are reported
for agroecological enterprises are vague at best and the estimates do not show how these
enterprises compare with respect to variable costs, labour requirements, investment needs,
returns to capital and other matters of private and social importance that farmers think about
in deciding what crops to grow. Agroecological crops may very well do better than tobacco
on several of these scores, but there are still likely to be a number of good reasons for
including tobacco as part of the farm mix as well. Without more detailed cost and profit
information, it is difficult to draw firm conclusions on how these crops truly compare.
In the second place, Vargas and Campos report there are 330 families involved in
agroecological products in the Rio Pardo Valley, which is an exceptionally small number
1
(11, p. 16-17).
36
compared with the total number of tobacco growers. Without doubt, the hard work by farmer
groups and other associations involved with ECOVALE is highly commendable, but the
experience so far does not really suggest these crops could ever substitute for tobacco on a
large scale. For widespread farmer participation, market linkages clearly need to be extended
beyond local fairs and restaurants and will therefore involve completely different cost and
price structures than the ones encountered so far. Horticulture production and marketing is, in
fact, one of the most demanding areas of agriculture and requires specialized infrastructure as
noted above. Whether anything like the ECOVALE programme can be built up to this level is
the true challenge for developing an alternative crop as a competitive substitute for tobacco.
Banana farming in Schroeder
The next example of alternative crop production described by Vargas and Campos is of
banana farming in the municipality of Schroeder in northeastern Santa Catarina state. This is
a highly urbanized region in which rice, cassava, sugar-cane, corn and bananas have always
been the agricultural mainstays compared with tobacco, which only ever accounted for less
than 3% of total agricultural production value. Throughout the 1990s, bananas remained the
main agricultural product, contributing about 60% of total agricultural production value.
At the end of the 1970s, dissatisfied tobacco growers created a group in the agriculture
department of the local Industrial, Commercial and Agricultural Association, which became
the current Banana Producers Association of Santa Catarina. Motivated and helped by the
creation of the Association, participating farmers were able to achieve gains in banana
productivity throughout the 1980s and 1990s and to adapt to the quality standards required
for trade in wider state and national markets. In 2000, the state research agency began
working in partnership with the Association on a pilot monitoring project aimed at
controlling critical banana diseases. In 2005, there were 92 associated members farming
bananas over a combined area of 937.5 ha. Tobacco is no longer grown in Schroeder. While
farmers have been able to covert completely from tobacco, this was never an especially
important crop to begin with and much of the infrastructure needed for banana production
and marketing was in place already.
In terms of farmer profit, the net income for a small banana producer works out at around
US$ 811 per hectare, which is roughly double the per hectare estimates for tobacco cited
above. Vargas and Campos do not provide data showing the costs of production for bananas
or how the rates of return to capital and labour compare with tobacco and other enterprises.
This example does however illustrate that other enterprises can be developed to replace
tobacco, but this is likely to require good coordination, group work and the involvement of
state and other local institutions to succeed.
Organic food crops and value chain development in Santa Rosa de Lima
The third example of crop substitution is similar to the first in terms of the introduction of
organic food crops. In this case, Vargas and Campos describe a three-stage process beginning
in late 1996 with the formation by 12 families of a farmers’ association to produce organic
crops at the invitation of a local supermarket owner. The association grew rapidly and
established a board of directors to build new market links and synchronize production of its
members.
37
In the second stage, from mid-1998 to 2000, the number of members jumped from 200 to
nearly 500 members including some from other municipalities. Several value-adding
activities were also included using external grants and support. At the end of this phase,
however, the original (and most important) supermarket buyer declared bankruptcy causing a
serious setback for the association. Other constraints on competitiveness became apparent as
a result of this loss and the association was forced to scale down considerably due to
competition from lower-cost producers closer to the main urban markets, difficulty in
transporting fresh produce long distances, financial losses due to spoilage and overwhelming
(and apparently uncontrolled) volume increases in production by new members. In the third
stage of development, the focus switched to agro-processing. In this phase, a total 27 agroindustrial units were established that are now producing a wide range of products ranging
from salami, honey, brown sugar and its byproducts, pickled vegetables and fruit preserves,
processed milk and vegetables. The main outlet now seems to be local fairs rather than longdistance supermarket chains.
In terms of the original focus on organics, only around 35–45 families remained associated
and working with these crops in 2005, but not necessarily as their main revenue source. Other
families that were once a part of the association returned to tobacco production or to other
activities connected with conventional agriculture. Due to the nature of their study, Vargas
and Campos do not provide information on how the organic food crops, processed products,
or longer-distance supermarket vegetables compare in terms of farmer cost and profitability.
As an example of what is required to develop and coordinate competitive value chains,
however, this example is very informative. In the first place, market coordination became a
significant challenge to the members who quickly encountered several practical problems.
This case study also exposes the weakness of relying on one or two main market outlets, as
well as the importance of controlling farmer participation in order to achieve the required
quality standards for fresh horticultural products. Almost naturally, the association has
evolved to focus on a range of fairly basic processed products for which timeliness of
delivery is less of an issue and not so complicated to manage.
Conclusions
Taken together, these experiences from Brazil are each encouraging and help to illuminate
some of the practical challenges with developing new production and marketing chains. From
a diversification perspective, each group was able to succeed in their own right, but
sometimes on a more limited basis than participants might have hoped for and with numerous
ups and downs along the way. As commented already, competitive value chain development
is neither easy nor automatic. Far more effort will be needed to build on these types of
experiences if alternative crops are truly to become a viable alternative for the hundreds of
thousands of tobacco growers in Brazil (and other countries). Niche products like organic
vegetables, for example, certainly can be an alternative, but this is only a limited market and
many other competitive products will also need to develop alongside tobacco if the majority
of tobacco growers are really going to have a practical choice of what to grow.
E.
China
China is by far the world’s largest tobacco grower and currently accounts for around 42% of
global production. China is also the largest consumer of cigarettes, with approximately one
quarter of the world’s smokers. With a centrally planned tobacco policy, the Chinese
38
government plays an important role in tobacco and cigarette production through its national
monopolies, the State Tobacco Monopoly Administration and the China National Tobacco
Company. Cigarette production is an important source of central government revenue,
accounting for about 10% of total revenue equal to 10.5 billion yuan (or approximately US$
1.27 billion) to central government revenue in 2001. In 2000, some 1.27 million hectares
were devoted to this crop (29).
With such a dominant position in the global tobacco economy, some consideration of
diversification opportunities and cost structures for tobacco and alternative crops in China is
clearly in order. Unfortunately, reliable data seem to be extremely limited. One recent study
led by Teh-wei Hu and a team of researchers from Chengdu and Shangahi Universities, for
example, provides only scant information on real production trends and comparative costs
(29).
The central argument put forward by Hu and his team about tobacco compared with other
enterprises is that the crop provides lower returns than alternative crops including grains,
oilseeds, beans and fruit. He also observes that government uses various incentives to
promote tobacco because of the importance to tax revenue. The methodology used for these
calculations, however, including the types of tobacco and production systems being modeled,
is not clear. Moreover, rate of return calculations only illustrate one aspect of cost and
profitability and are almost meaningless without information on what those costs and profits
actually are. Particularly for farmers with only a small parcel of land, there may be no choice
but to accept a commodity that provides a low rate of return if that is the only (viable)
enterprise that provides a large enough cash income to last throughout the year. Another
weakness is that yield and price differences (which vary greatly by quality) are not accounted
for by Hu, making the data even more difficult to interpret.
Because of the global importance of China as a tobacco producer, some further analysis of
the underlying economics of this crop and alternative commodities would be very useful to
the discussion of diversification possibilities. In the face of possible long-term reductions in
global demand, China is likely to be the main country that other producers have to compete
with. More comprehensive analysis of Chinese tobacco may be available somewhere, and
additional research on specific costs and profits would be very useful for the larger dialogue
on alternative crops.
F.
Canada
While the focus of this paper is primarily on developing countries, some additional insight to
the issue of crop substitution can be gained by looking briefly at experiences in the developed
world as well. As noted earlier, these countries are in a much stronger position to promote
alternative enterprises, both in terms of the ability to afford farmer quota buy-outs and greater
opportunities for farm and non-farm diversification. A summary article on Canada’s
diversification experience by Cunningham for the International Development Research
Centre helps to illustrate these points as well as a number of similarities in terms of the
challenges of competitive value chain development.1
Tobacco production
1
This case study is taken from the IDRC web site which provides a summary of the book by Cunningham (30)
on Canadian tobacco.
39
As Cunningham’s article begins, Canada’s success in controlling smoking is all the more
notable given the large quantity of tobacco leaf grown in the country. Tobacco is both a
significant cash crop and an important agricultural export. In the mid-1990s, Canada ranked
as the world’s sixth largest producer of flue-cured tobacco and among the top 20 producers
including all types of tobacco. About 90% of the tobacco grown in Canada is produced in a
highly concentrated area in southwestern Ontario near the north shore of Lake Erie.
Historically, tobacco companies in Canada have encouraged and helped farmers to begin
growing tobacco and, even today, tobacco continues to make a huge contribution to the local
economies of four Ontario counties. In fact, tobacco farmers are shown to do very well
financially. In 1990s, according to Statistics Canada, tobacco farmers earned an average
income of CA$ 79 000 (US$ 67 000), compared to an average for all farmers of CA$ 47 500
(US$ 40 000). In 1990, the income of the average tobacco farm exceeded the income of about
two thirds of Ontario families.1
Although the federal government of Canada also has a long history of supporting tobacco
farming tracing back to the early 1900s, Canada has more recently taken some of the most
aggressive steps in the world to reduce tobacco production. Between 1987 and 1993, more
than CA$ 50 million (US$ 42.4 million) was paid by federal and provincial governments to
farmers who stopped growing tobacco. A further CA$ 13 million (US$ 11 million) was spent
on projects helping to find alternative crops. As Cunningham notes, these initiatives have had
three obvious practical and political benefits, including the following:
•
they assisted affected farmers;
•
they reduced the number of people with a vested economic interest in
opposing tobacco-control measures;
•
they gave governments a handy response when faced with farmer
complaints about efforts to reduce smoking.
Diversification efforts
More specifically, Cunningham explains that Canada’s Tobacco Diversification Plan,
announced in 1987, had two components including the Tobacco Transition Adjustment
Initiative (commonly known as Redux) and the Alternative Enterprise Initiative. Redux
provided compensation to farmers who had left tobacco and financial incentives for other
farmers to cease tobacco production. Farmers who retired 50% of their quota and sold the
remaining 50% on the open market could get up to CA$ 65 000 (US$ 55 000) compensation.
By all accounts, the programme helped with an orderly downsizing of tobacco farming.
Remaining farmers were also in a better position because they were able to grow a higher
percentage of their quota.
By 1990, Redux had helped about one third of tobacco growers across Canada exit from
tobacco production. Of the Ontario farmers who exited, half said they would have exited had
there been no programme, and a third said the programme prompted them to discontinue
farming. Many farmers eligible for Redux did not take advantage of the programme because
they were better off continuing to grow tobacco. Of the Ontario and Quebec farmers who did
1
These patterns are not dissimilar from the situation in developing countries.
40
leave, about 40% were still involved afterwards in tobacco growing, typically as employees
of other farmers.
The Alternative Enterprise Initiative provided financial support for the development of new
crops, or the marketing and processing of existing non-tobacco crops unless this disrupted
crop production by other farmers. However, Cunningham explains that the programme was
not very successful. In the first place, some of the funds were not used because farmers were
reluctant to leave a high-income crop (tobacco) for a riskier low-income activity. Large
amounts of money were also given to ventures that failed. A peanut cooperative, for example,
went bankrupt and the Southern Ontario Tomato Cooperative was declared “a very
controversial, problem-ridden project” by a government report. After being given money to
run a tomato-processing facility, the venture ultimately failed, primarily because farmers did
not have the necessary knowledge base or marketing skills to jump suddenly into new big
projects.1
Despite these difficulties (which, after all, are not atypical of large-scale government-funded
programmes), Cunningham explains that since the early 1980s, many farmers who once grew
tobacco have used their land to produce alternative crops, including ginseng, baby carrots,
rhubarb, Spanish onions, zucchini, coriander, garlic, melons, early and sweet potatoes,
buckwheat and hay. Government programmes he says have contributed to this diversification,
but the biggest factor has been the free market. As the demand for Canadian tobacco fell in
the 1980s, farmers realized they could make more money by reducing this crop and growing
something else, either instead of or alongside tobacco. By the late 1980s, tobacco farming
had stabilized and the number of farmers exiting tobacco slowed to a trickle.
Finally, Cunningham concludes that remaining tobacco farmers will probably be secure and
continue to make good money in the short term. Moreover, he notes that current farmers are
getting older, with many approaching retirement. Farmers’ children are much less interested
in taking over the family farm than would have been the case two or three decades ago, and
many in the newer generation have moved into other businesses completely outside of
agriculture.
Conclusions
With respect to other countries looking to build a diversification programme, the Canadian
experience, much like the other case studies, illustrates that alternative crops can substitute
for some of the income earned from tobacco, but that programmes designed to promote
diversification crops simply for the sake of promoting diversification crops are likely to face
an uphill battle. Grand ideas like the development of tomato processing facilities and the
establishment of peanut cooperatives may sound good in principle, but must still be
competitive and well managed. If these facilities have not developed already on their own
accord, there may be some very good fundamental reasons other than the dominance of
tobacco to explain this. Developing countries with fewer resources than Canada will need to
be even more prudent in deciding the best way to help new activities emerge alongside
tobacco.
Indeed, while the Canadian experience is informative, it is clearly very different from what
most developing countries can expect. Donor funding for something like a tobacco buy-out
1
Similar problems were identified by Vargas and Campos in their study of diversification in Brazil (11).
41
programme is perhaps not inconceivable, but it is abundantly clear that Canadian farmers
benefited from many favourable economic conditions that most developing countries cannot
offer. The same principles of adherence to market forces and risk of diversification for the
sake of diversification still hold true, but the development of new enterprises will likely be
more complicated and slow in developing countries without a large consumer base for
alternative products and other opportunities for non-farm employment.
IV.
CONCLUSIONS
This paper was prepared to provide an improved basis for discussion of the opportunities for
crop substitution and issues that need to be considered in promoting alternative commodities
to tobacco. Rather than look at the question of tobacco from a traditional health perspective,
the paper began with recognition that agricultural production and marketing begins with the
decisions farmers make and proceeded to look at the topic from an agricultural economics
point of view. As provisions of the WHO FCTC take effect, it is important to have an idea of
what farm products could begin to substitute for tobacco and what type of support is required
to help these commodities emerge. The paper did not seek to make any specific policy
recommendations and is merely offered as a starting point for discussion of crop substitution
by the study group on alternative crops.
Towards this end, the analytical discussion began in Section 2 with an overview of important
issues that shape a country’s diversification choices and reasons to pursue alternative crops.
Although the markets for tobacco are still expanding, there are many good reasons to
consider diversification opportunities. Not least of these is that new commodity systems are
likely to take considerable time to develop and emerge as competitive alternatives to tobacco.
Although time does still appear to be on the side of farmers and policy-makers, it is important
to understand what products might emerge as viable substitutes and what steps are required to
support these enterprises.
Next, in Section 3, the paper looked in closer detail at specific crop options and development
experiences in six countries. Among other things, the analysis helped to illustrate the type of
analytical approaches other countries may want to pursue in thinking about their own
substitution possibilities. The analyses of Indonesia, Zimbabwe and Malawi, for example,
were based on a very specific examination of farm level costs and returns. Given the many
strong arguments being made for and against tobacco, it is essential to have a clear
understanding of how the underlying costs and profitability of tobacco compare with other
commodities. The situation in other countries could be very different from the results
presented here, and other countries involved in tobacco production may do well to include
this type of financial and economic assessment as part of their own strategic planning
process. Crop budget analysis cannot be used to predict optimal farm plans, but does help to
anticipate areas of growth and focus attention on the types of investment needed for
competitive products to emerge.
Summary points
With the general approach and limitations of this study in mind, several important
conclusions stand out that are useful to summarize as follow.
•
Several crops rival and sometimes surpass tobacco for total net profit and rates
of return.
42
•
Tobacco is expensive to grow, but so too are most high-value alternatives that
rival tobacco for potential income.
•
Consideration of alternative crops demands attention to climatic suitability,
market linkages and long-term price trends.
•
The markets for most high-value alternatives are generally much smaller than
for tobacco and more difficult to penetrate.
•
Countries should not expect to develop just one or two substitute commodities,
but need to focus on helping multiple products emerge alongside tobacco.
•
The development of new enterprises requires investment in specific supplychain processes beginning at the farm level and extending through to crop
assembly, processing and distribution.
•
Tobacco is never grown as a monocrop and most “tobacco farmers” already
have diversified sources of income.
•
Tobacco income can help fuel the introduction of alternative crops as a longterm response to the threat of shrinking markets.
Costs and profitability
One common myth about tobacco is that it is the most profitable crop a farmer can grow. This
is far from true and the analysis clearly shows that many other commodities have the
potential to rival and even surpass tobacco in terms of gross and net profits, returns to cash
and returns to family labour. In Indonesia, potato, chili, nilam and oranges were all found to
return higher profits than tobacco depending on farm management. In Zimbabwe, the analysis
likewise shows that paprika, coffee and specialty horticulture crops offer greater profits than
tobacco, and in Malawi, tomato, paprika, rice, confectionery groundnuts and coffee all
provide higher incomes for smallholder farmers depending on market arrangements. Tobacco
certainly can be very profitable, especially compared with staple foods, but there is little
evidence to show that the cultivating the crop is the most profitable or only profitable activity
a farmer can do.
In looking at substitution possibilities the analysis also shows that tobacco is an expensive
crop to grow, but so too are most high-value alternatives. Together with the need for careful
quality controls, the high costs for tobacco has often led the introduction of various input
supply programmes managed by the tobacco companies. In Brazil and elsewhere, these
programmes have sometimes come under heavy criticism as a way of trapping farmers into
tobacco production. The problem of affording the inputs for tobacco is indeed a serious
constraint, but a move away from tobacco will not eliminate the need for pre-season finance
and technical support systems. Instead, there is a very specific development challenge of
building new (and hopefully better) support systems for other crops as part of a
diversification programme. It will take time for these systems to emerge and any successful
transition from tobacco will almost certainly be a gradual process.
Marketing and value chain development
43
Another important consideration is that the markets for most high-value products that could
substitute for a loss of tobacco revenue are much smaller and more difficult to penetrate.
Paprika, for example, can be highly profitable, but total world demand is only about 120,000
tons annually and any new production by tobacco growers would come into immediate
competition with already established paprika growers. Pre-packed supermarket vegetables are
sometimes also described as a good alternative, but these markets are also limited by
international competition and require strict adherence to specific quality control guidelines.
Horticulture production and marketing is, in fact, one the most demanding areas of
agriculture and, if anything, the value chains for fresh vegetables are even more demanding
than tobacco in terms of buyers dictating what inputs can and cannot be used, what prices
will be paid and what crops must be grown.
In this respect, the challenge of developing new supply chains for alternative products may
appear daunting, but this does not mean that new products cannot, or will not, emerge over
time to replace tobacco. As the markets for tobacco begin to shrink, it is natural to expect that
other commodities will become relatively more attractive and gradually emerge alongside
tobacco. Global supply and demand conditions for alternative high-value commodities 25 or
even 50 years into the future are difficult to predict, but with the right type of financial
incentives and policy environment for private businesses to flourish, the free market is more
than capable of sending the right signals that producers and other value chain participants
need in order to discover what works best.
In this respect, another important future role for tobacco can also be to help fuel the process
of diversification itself. Specific policy incentives that encourage tobacco growers to use their
income to invest in other farm activities may very well be worth exploring. Before the
economic crisis in Zimbabwe, for example, more than 80% of horticulture exports were
grown on tobacco farms and were first developed using tobacco revenue. Other countries
may do well to encourage similar ways of harvesting tobacco revenue as a driver of new
investments in other areas. At least for the foreseeable medium term, the opportunities to
utilize tobacco income and to get the greatest possible benefit from the crop (while also
seeking to reduce consumption and minimize public health costs) should not be overlooked.
Future research
No matter how the findings from this paper are interpreted, one final conclusion that stands
out very clearly from the evaluation is that effective agricultural policy-making requires
careful analysis. Without an understanding of how tobacco and other commodities compare
in terms of farmer costs and profitability, investment requirements, marketing systems, labour
needs and other matters of private and social importance, sector planning can easily become
an exercise in guesswork based on presuppositions about which crops and farm systems are
best. This is particularly true in the case of tobacco, where the costs and benefits of growing
the crop are often discussed from other perspectives than agriculture and farm economics.
The analyses of Indonesia, Zimbabwe and Malawi were all based on very specific, practical
methodologies that help compare different products and farm systems from a variety of
perspectives. Only with a common ground for dialogue and understanding, can private
investors, policy-makers and donors alike begin to talk sensibly about true agricultural sector
priorities and how best to cope with the likelihood of shrinking tobacco markets.
It is hoped that other countries will want to build on the type of research presented here and
begin to make use of the methodologies underlying the analysis. In addition to a focus on
44
specific farm-level costs and profits, other tools have recently been developed to quantify
value chain processes and price build-up from stage to stage as indicators of countries’ actual
and potential competitiveness for new and existing products (10). Applied to the question of
crop substitution for tobacco, these methods could be used as powerful tools to help policymakers to make sense of the competing arguments and priorities associated with the tobacco
debate.
Finally, it should be emphasized that many other conclusions besides those noted above can
be drawn from the detailed case studies and other information presented in this report.
Agricultural administrators, public health officials, farmers, agribusiness firms, tobacco
companies and others are all likely to interpret the discussion differently, with an increased
emphasis on their particular interests and areas of concern. As a starting point for discussion,
however, it is hoped that this paper has at least helped to raise awareness of the importance of
understanding how tobacco truly compares with other enterprises from a farm management
and agricultural economics point of view. Without an understanding of these important
production-level issues, wider efforts to promote tobacco control are likely to face an uphill
battle.
45
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48
APPENDIX 1: Tobacco Production in Selected Countries (tons unmanufactured)
Sorted by 2005 volume.
China
Brazil
India
United States of America
Argentina
Indonesia
Turkey
Greece
Italy
Thailand
Malawi
Zimbabwe
Zambia
Tanzania, United Rep of
Canada
Macedonia, The Fmr Yug Rp
Kenya
Uzbekistan
Kazakhstan
Kyrgyzstan
Dominican Republic
Moldova, Republic of
Japan
Africa
Europe
Asia
World
1961
395,854
167,839
307,000
935,000
48,400
85,800
101,407
74,245
24,974
29,000
12,202
99,890
7,273
2,701
95,127
1971
801,808
244,172
361,900
773,322
61,700
57,352
173,861
88,162
79,274
49,000
26,438
65,181
6,297
14,154
102,040
1981
1,519,718
365,738
480,800
936,030
50,889
109,646
168,024
130,900
130,970
75,230
51,031
71,812
2,984
17,200
112,369
1991
3,051,686
413,831
555,900
754,950
94,504
140,283
240,881
161,900
193,296
85,400
113,374
178,595
5,500
23,322
78,704
2001
29,393
22,818
40,223
23,700
126,900
149,600
137,700
69,897
2,358,842
568,505
340,000
449,760
98,110
201,900
144,786
142,000
130,487
64,000
82,544
195,905
3,400*
24,270
58,606
23,200
19,500
19,000
14,700
24,036
16,800
16,058
60,600
203,815
363,955
1,517,233
3,576,965
218,519
563,611
2,355,098
4,571,831
243,187
741,855
3,245,776
5,988,825
434,880
691,587
4,892,387
7,563,343
470,566
537,954
3,758,933
6,146,428
26,502
448
161
3,701
10,000
8,800
2,088
43,200
42,382
FAOSTAT (31) 03 February 2007
1992 data
* 2000 TAZ data updated from Reuters.
** TAZ data updated from Reuters.
49
2002
2003
2004
2005
2,454,105
670,309
550,000
398,520
125,431
194,500
152,856
133,000
122,231
78,000
69,401
178,408
4,800
28,000
54,550
22,044
20,000
19,000
15,830
6,154
12,700
11,806
58,200
2,262,658
656,200
490,000
364,080
117,779
210,300
160,252
136,000
124,985
66,000
69,500
102,683
4,800
28,000
46,338
21,592
20,000
19,000
15,898
8,690
11,500
6,692
50,662
2,411,490
921,281
598,000
400,060
118,000
141,000
157,000
133,936
117,882
68,000
69,500
62,320
14,300**
34,000
42,430
21,140
20,000
19,000
14,314
12,988
11,560
7,900
52,659
2,688,500
878,651
598,000
290,170
163,528
141,000
140,716
123,729
110,000
70,000
69,500
65,000
453,736
527,521
4,055,264
6,468,958
378,347
509,515
3,770,700
6,020,704
334,050
516,257
3,954,292
6,466,987
346,904
482,615
4,226,556
6,603,571
52,000**
47,000
43,000
27,691
20,000
20,000
14,000
13,396
12,000
6,000
n/a
Appendix 2: Indonesia Financial Indicators for Tobacco and Other Crops
INDONESIA: Per Hectare Financial Indicators
2003 data sorted by management level and ranked by net profit.
TBN/NO tobacco not included since farmed on contract arrangement (different terms apply) - average payment to farmer around $945/ha.
* Analysis of rice based on CASER/USAID study where distinction between management levels is based on irrigation technology; because of different data source, missing financial indicators could not be calculated.
** Labour estimates for tobacco include land preparation that benefits other crops (all production is heavily intercropped).
Farmer Income (USD/ha)
Labour
Sensitivity Indicators
Production Costs (USD/ha)
Annual
Gross profit
Net profit
Net profit
Net profit
% change % change % change
Region
Gross
Total
capital
Total
(gross
(gross
Return
Hired
Family
Total
per day
per day total in yield to in yield to in price to
Primary Covered
Yield
Revenue
variable
recovery production revenue - var revenue - Return to to total
labor
labor
labor
family labor
labor
gross profit
net
net
costs
cost
costs
costs)
total cost) var costs costs
(days) (days) (days)** (USD/day) (USD/day)
=0
profit = 0 profit = 0
Crop
Region by Model (kg/ha)
(USD/ha)
LOW INPUT
Chili
Potato
Nilam (yr 2)
VA-Kretek Tobacco
Groundnuts
Corn
Carrots
Garlic
All
Upland
All
Midland
Upland
Lowland
6,800
6,000
19,000
2,674.2
1,887.6
1,067.4
1,169.6
941.0
401.6
17.0
13.5
20.2
1,186.5
954.5
421.7
1,504.6
946.7
665.8
1,487.6
933.2
645.7
1.29
1.01
1.66
1.25
0.98
1.53
365
75
271
Upland
All
All
Upland
Upland
Upland
Lowland
Lowland
Midland
Upland
600
750
2,250
3,750
1,050
1,479.8
505.6
391.9
252.8
530.9
944.2
178.6
145.5
127.3
505.7
70.3
13.5
13.5
13.5
13.5
1,014.5
192.0
159.0
140.8
519.2
535.5
327.1
246.3
125.5
25.2
465.3
313.6
232.9
112.0
11.7
0.57
1.83
1.69
0.99
0.05
0.46
1.63
1.46
0.80
0.02
316
39
46
92
195
122
67
51
205
67
40
51
81
487
142
322
521
106
86
143
276
12.2
13.9
12.7
2.3
4.7
5.8
2.2
0.1
3.1
6.6
2.0
0.9
3.0
2.7
0.8
0.0
-55%
-51%
-74%
-38%
-65%
-63%
-50%
-5%
-54%
-50%
-72%
-33%
-62%
-59%
-44%
-2%
-52%
-79%
-60%
-46%
-78%
-60%
-44%
-2%
Upland
All
Upland
All
All
All
Upland
Upland
Upland
Midland
Upland
Lowland
Lowland
Lowland
Midland
Upland
9,000
8,000
950
26,000
900
2,800
5,000
1,950
2,831.5
3,146.1
2,282.7
1,460.7
606.7
487.6
337.1
986.0
1,214.3
1,586.6
1,218.5
643.6
263.5
226.1
189.7
883.7
13.5
17.0
81.7
30.2
13.5
13.5
13.5
13.5
1,227.8
1,603.6
1,300.1
673.8
277.0
239.6
203.2
897.2
1,617.1
1,559.4
1,064.2
817.0
343.2
261.6
147.4
102.2
1,603.6
1,542.5
982.5
786.8
329.7
248.1
133.9
88.7
1.33
0.98
0.87
1.27
1.30
1.16
0.78
0.12
1.31
0.96
0.76
1.17
1.19
1.04
0.66
0.10
99
433
430
372
68
55
119
305
73
149
263
68
68
40
47
55
172
582
693
440
136
95
166
360
22.0
10.4
3.7
11.6
4.8
6.2
2.8
1.6
9.3
2.7
1.4
1.8
2.4
2.6
0.8
0.2
-58%
-48%
-46%
-67%
-57%
-54%
-46%
-10%
-57%
-47%
-42%
-64%
-54%
-51%
-41%
-9%
-57%
-45%
-76%
-54%
-54%
-51%
-40%
-9%
Upland
All
Upland
All
All
All
Upland
Upland
Upland
Midland
Upland
Lowland
Lowland
Lowland
Upland
Midland
13,000
9,000
1,200
31,000
1,025
3,100
2,550
6,000
4,089.9
3,539.3
2,807.2
1,741.6
691.0
539.9
1,432.6
404.5
1,552.0
1,853.9
1,591.2
847.0
322.6
265.9
1,173.9
232.9
13.5
17.0
84.2
50.7
13.5
13.5
13.5
13.5
1,565.5
1,870.9
1,675.4
897.6
336.1
279.4
1,187.4
246.4
2,537.9
1,685.4
1,216.0
894.6
368.4
274.0
258.7
171.6
2,524.4
1,668.4
1,131.8
843.9
354.9
260.5
245.2
158.1
1.64
0.91
0.76
1.06
1.14
1.03
0.22
0.74
1.61
0.89
0.68
0.94
1.06
0.93
0.21
0.64
129
507
568
452
80
65
348
137
84
173
350
81
81
45
62
52
213
680
918
533
161
110
410
189
30.1
9.6
3.2
10.4
4.4
5.8
3.9
3.0
11.9
2.5
1.2
1.6
2.2
2.4
0.6
0.8
-63%
-46%
-44%
-61%
-53%
-51%
-18%
-44%
-62%
-45%
-40%
-58%
-51%
-48%
-17%
-41%
-62%
-44%
-68%
-48%
-51%
-49%
-17%
-39%
Lowland
Lowland
Lowland
Lowland
Lowland
Lowland
Lowland
Lowland
6,360
5,880
4,900
3,970
678.9
627.6
523.0
423.8
-
-
-
678.9
627.6
523.0
423.8
678.9
627.6
523.0
423.8
-
-
183
147
116
90
24
22
48
54
207
169
165
144
28.1
28.1
10.8
7.8
3.3
3.7
3.2
2.9
-58%
-61%
-51%
-63%
0%
0%
0%
0%
0%
0%
0%
0%
Lowland
Lowland
Lowland
Lowland
Lowland
Lowland
Lowland
Lowland
5,900
5,370
4,810
3,780
563.5
512.9
459.4
361.0
-
-
-
563.5
512.9
459.4
361.0
563.5
512.9
459.4
361.0
-
-
108
106
110
91
36
36
36
14
144
142
146
105
15.8
14.3
12.8
25.7
3.9
3.6
3.2
3.4
-63%
-62%
-63%
-61%
0%
0%
0%
0%
0%
0%
0%
0%
MEDIUM INPUT
Potato
Chili
VA-Kretek Tobacco
Nilam (yr 2)
Groundnuts
Corn
Carrots
Garlic
HIGH INPUT
Potato
Chili
VA-Kretek Tobacco
Nilam (yr 2)
Groundnuts
Corn
Garlic
Carrots
RICE - dry season*
Technical Irrigation
Semi-technical irrigation
Simple irrigation
Rain fed
RICE - wet season*
Technical Irrigation
Semi-technical irrigation
Simple irrigation
Rain fed
SOURCE: Keyser (12)
,
50
Appendix 3: Zimbabwe Financial Indicators for Tobacco and Other Crops
ZIMBABWE: Per Hectare Financial Indicators for Large Commercial Farmers
2001 data sorted by irrigation use and management level and ranked by net profit.
For roses, yield and price are per 1,000 stems
Activity
Irrigation
Yield
(kg/ha)
Farm gate
Price
(USD/kg)
Gross
Revenue
(USD/ha)
Production Costs (USD/ha)
Annual
Total costs
Total variable investment
(excl family
costs
cost
labor)
Farmer Income (USD/ha)
Gross profit Net profit (gr
Return
(gr revenue - revenue - Return to to total
var costs)
total cost) var costs costs
Labour
Net profit per
Total labor day total labor
(days/ha)
(USD/ha)
Sensitivity Indicators
% change in % change in
yield to gross yield to net
profit = 0
profit = 0
% change in
price to net
profit = 0
IRRIGATED CROPS
LOW INPUT
Tobacco, flue-cured
Wheat
Cotton
Groundnuts
Soybeans
Maize
MEDIUM INPUT
Tobacco, flue-cured
Coffee (USD 2,000mt)
Wheat
Coffee (USD 1,500mt)
Cotton
Groundnuts
Coffee (USD 1,360mt)
Soybeans
Maize
HIGH INPUT
Tobacco, flue-cured
Coffee (USD 2,000mt)
Coffee (USD 1,500mt)
Export veg - mange tout
Export veg - baby carrots
Coffee (USD 1,360mt)
Wheat
Cotton
Groundnuts
Marigold
Export veg - baby corn
Soybeans
Maize
PAPRIKA
Paprika - long season
Paprika - short season
ROSES - auction sales
Roses (long stem)
Roses (medium stem)
Roses (short stem)
overhead
overhead
overhead
overhead
overhead
overhead
2,800
5,500
2,500
3,000
2,400
6,000
1.70
0.20
0.43
0.30
0.23
0.10
4,760.0
1,100.0
1,065.5
908.2
545.5
628.4
2,867.2
752.2
873.6
880.9
528.9
620.8
303.5
188.1
188.1
188.1
188.1
188.1
3,170.7
940.3
1,061.7
1,069.1
717.0
808.9
1,892.8
347.8
191.8
27.2
16.6
7.6
1,589.3
159.7
3.7
(160.9)
(171.5)
(180.5)
0.66
0.46
0.22
0.03
0.03
0.01
0.50
0.17
0.00
(0.15)
(0.24)
(0.22)
462
19
212
90
22
30
3.4
8.4
0.0
(1.8)
(7.8)
(6.0)
-48%
-35%
-23%
-4%
-3%
-1%
-41%
-16%
0%
21%
35%
35%
-35%
-15%
0%
18%
32%
29%
overhead
drip line
overhead
drip line
overhead
overhead
drip line
overhead
overhead
3,100
2,000
6,500
2,000
3,000
4,000
2,000
2,900
7,000
1.77
2.00
0.20
1.50
0.43
0.30
1.36
0.23
0.10
5,487.0
4,000.0
1,300.0
3,000.0
1,278.5
1,210.9
2,720.0
659.1
733.1
3,007.8
2,227.2
816.0
2,227.2
931.5
961.7
2,227.2
566.2
687.6
303.5
514.5
188.1
514.5
188.1
188.1
514.5
188.1
188.1
3,311.3
2,741.7
1,004.1
2,741.7
1,119.6
1,149.8
2,741.7
754.3
875.7
2,479.2
1,772.8
484.0
772.8
347.1
249.2
492.8
92.9
45.5
2,175.7
1,258.3
295.9
258.3
159.0
61.1
(21.7)
(95.3)
(142.6)
0.82
0.80
0.59
0.35
0.37
0.26
0.22
0.16
0.07
0.66
0.46
0.29
0.09
0.14
0.05
(0.01)
(0.13)
(0.16)
482
321
20
321
245
110
321
23
45
4.5
3.9
14.8
0.8
0.6
0.6
(0.1)
(4.1)
(3.2)
-55%
-48%
-41%
-28%
-34%
-25%
-20%
-16%
-8%
-48%
-34%
-25%
-9%
-14%
-6%
1%
16%
24%
-42%
-31%
-23%
-9%
-11%
-5%
1%
15%
20%
overhead
drip line
drip line
drip line
drip line
drip line
overhead
overhead
overhead
overhead
drip line
overhead
overhead
3,500
2,500
2,500
4,000
3,800
2,500
7,500
3,500
5,000
14,000
950
3,400
8,000
1.80
2.00
1.50
0.55
0.50
1.36
0.20
0.43
0.30
0.11
0.95
0.23
0.10
6,300.0
5,000.0
3,750.0
2,200.0
1,900.0
3,400.0
1,500.0
1,491.6
1,513.6
1,484.0
902.5
772.7
837.8
3,169.4
2,439.1
2,439.1
1,248.0
1,209.1
2,439.1
927.1
1,017.2
1,039.9
1,035.2
685.0
592.1
738.6
303.5
514.5
514.5
186.8
186.8
514.5
188.1
188.1
188.1
188.1
186.8
188.1
188.1
3,472.9
2,953.6
2,953.6
1,434.8
1,395.9
2,953.6
1,115.2
1,205.3
1,228.0
1,223.3
871.8
780.2
926.7
3,130.6
2,560.9
1,310.9
952.0
690.9
960.9
572.9
474.5
473.7
448.8
217.5
180.6
99.2
2,827.1
2,046.4
796.4
765.2
504.1
446.4
384.8
286.4
285.6
260.7
30.7
(7.5)
(88.9)
0.99
1.05
0.54
0.76
0.57
0.39
0.62
0.47
0.46
0.43
0.32
0.31
0.13
0.81
0.69
0.27
0.53
0.36
0.15
0.35
0.24
0.23
0.21
0.04
(0.01)
(0.10)
497
375
375
295
275
375
21
278
135
136
190
24
50
5.7
5.5
2.1
2.6
1.8
1.2
18.3
1.0
2.1
1.9
0.2
(0.3)
(1.8)
-60%
-55%
-38%
-43%
-36%
-31%
-43%
-41%
-38%
-34%
-24%
-26%
-14%
-54%
-44%
-23%
-35%
-27%
-15%
-29%
-25%
-23%
-20%
-3%
1%
13%
-47%
-41%
-21%
-35%
-27%
-13%
-26%
-20%
-19%
-18%
-3%
1%
11%
overhead
overhead
6,000
3,000
1.37
1.37
8,203.6
4,101.8
3,135.6
2,256.8
303.5
303.5
3,439.1
2,560.3
5,068.0
1,845.0
4,764.5
1,541.5
1.62
0.82
1.39
0.60
310
270
15.4
5.7
-66%
-49%
-62%
-41%
-58%
-38%
drip line
drip line
drip line
1,100
1,750
2,750
239.13
147.83
86.96
263,043.5
258,695.7
239,130.4
184,355.5
198,082.1
193,706.3
28,459.8
28,459.8
28,459.8
212,815.3
226,541.9
222,166.2
78,688.0
60,613.6
45,424.1
50,228.1
32,153.8
16,964.3
0.43
0.31
0.23
0.24
0.14
0.08
9,360
9,360
9,360
5.4
3.4
1.8
-56%
-50%
-43%
-36%
-26%
-16%
-24%
-15%
-10%
no
no
no
no
no
2,200
1,500
1,800
3,500
1,600
1.69
0.40
0.30
0.10
0.23
3,718.0
606.3
544.9
366.5
363.6
2,375.7
555.3
499.1
381.7
391.9
221.6
106.2
106.2
106.2
106.2
2,597.3
661.5
605.3
487.9
498.1
1,342.3
51.0
45.8
(15.2)
(28.3)
1,120.7
(55.2)
(60.4)
(121.4)
(134.5)
0.57
0.09
0.09
(0.04)
(0.07)
0.43
(0.08)
(0.10)
(0.25)
(0.27)
382
145
57
19
12
2.9
(0.4)
(1.1)
(6.4)
(11.2)
-44%
-11%
-10%
5%
9%
-37%
12%
13%
43%
41%
-32%
9%
11%
34%
37%
no
no
no
no
no
no
2,500
2,300
1,900
2,300
2,100
4,500
1.76
0.40
0.40
0.30
0.23
0.10
4,400.0
929.6
767.9
696.3
477.3
471.3
2,546.1
707.3
624.2
573.1
429.3
431.3
221.6
106.2
106.2
106.2
106.2
106.2
2,767.7
813.5
730.4
679.3
535.5
537.5
1,853.9
222.3
143.8
123.2
48.0
40.0
1,632.3
116.1
37.6
17.0
(58.2)
(66.2)
0.73
0.31
0.23
0.21
0.11
0.09
0.59
0.14
0.05
0.02
(0.11)
(0.12)
415
198
172
68
13
23
3.9
0.6
0.2
0.2
(4.5)
(2.9)
-51%
-31%
-25%
-21%
-11%
-11%
-45%
-16%
-6%
-3%
13%
18%
-39%
-13%
-5%
-2%
12%
14%
no
no
no
no
2,800
2,800
2,600
5,500
1.79
0.30
0.23
0.10
5,012.0
847.6
590.9
576.0
2,708.7
631.1
455.2
503.9
221.6
106.2
106.2
106.2
2,930.3
737.3
561.4
610.1
2,303.3
216.5
135.7
72.1
2,081.7
110.3
29.5
(34.1)
0.85
0.34
0.30
0.14
0.71
0.15
0.05
(0.06)
437
83
14
27
4.8
1.3
2.1
(1.3)
-55%
-31%
-25%
-16%
-50%
-16%
-6%
8%
-44%
-13%
-5%
6%
DRYLAND CROPS
LOW INPUT
Tobacco, flue-cured
Cotton
Groundnuts
Maize
Soybeans
MEDIUM INPUT
Tobacco, flue-cured
Cotton
Cotton
Groundnuts
Soybeans
Maize
HIGH INPUT
Tobacco, flue-cured
Groundnuts
Soybeans
Maize
SOURCE:
Keyser (14)
51
Appendix 3: Zimbabwe Financial Indicators for Tobacco and Other Crops
ZIMBABWE: Per Hectare Financial Indicators for Communal and Small-Scale Commercial Farmers
2001 data sorted by management level and ranked by net profit.
Production Costs (USD/ha)
Activity
Yield
(kg/ha)
Farm gate
Price
(USD/kg)
Gross
Revenue
(USD/ha)
Total
variable
costs
Annual
investment
cost
Total costs
(excl family
labor)
Farmer Income (USD/ha)
Labour
Gross profit Net profit (gr Return to Return
(gr revenue - revenue cash
to total
cash costs) total cost)
costs
costs
Net profit
Total
Family
Hired per day total
labor
labor
labor
labor
(days/ha) (days/ha) (days/ha) (USD/ha)
Sensitivity Indicators
% change in % change in % change in
yield to gross yield to net price to net
profit = 0
profit = 0
profit = 0
COMMUNAL & RESETTLEMENT FARMERS
LOW INPUT
Paprika
Tobacco, flue-cured
Coffee (USD 2,000mt)
Tobacco, burley
Coffee (USD 1,500mt)
Cotton
Coffee (USD 1,360mt)
Groundnuts
Soybeans
Maize
800
650
150
650
150
700
150
550
700
825
1.05
1.45
2.00
0.85
1.50
0.36
1.36
0.30
0.21
0.10
844
943
300
553
225
252
204
167
149
86
252.0
437.8
37.6
318.5
37.6
76.7
37.6
74.3
79.8
40.5
8.5
71.7
19.9
44.5
19.9
8.5
19.9
8.5
8.5
8.5
260.5
509.5
57.5
363.0
57.5
85.2
57.5
82.8
88.3
49.0
591.6
504.7
262.4
234.0
187.4
175.4
166.4
92.2
69.1
45.9
583.1
433.0
242.5
189.5
167.5
166.9
146.5
83.7
60.6
37.4
2.35
1.15
6.97
0.73
4.98
2.29
4.42
1.24
0.87
1.13
2.24
0.85
4.21
0.52
2.91
1.96
2.55
1.01
0.69
0.76
220
260
135
225
135
102
135
75
50
54
150
150
110
150
110
102
110
75
50
54
70
110
25
75
25
25
-
2.69
1.94
1.94
1.04
1.39
1.72
1.23
1.23
1.38
0.85
-73%
-66%
-91%
-50%
-87%
-74%
-86%
-59%
-50%
-64%
-71%
-56%
-84%
-41%
-78%
-70%
-75%
-53%
-44%
-52%
-69%
-48%
-81%
-36%
-74%
-66%
-72%
-50%
-41%
-43%
1,000
450
800
450
1,000
450
1,200
825
1,000
1,250
1.05
2.00
1.51
1.50
0.95
1.36
0.36
0.30
0.21
0.10
1,055
900
1,208
675
950
612
432
250
213
131
331.3
213.8
565.2
213.8
497.7
213.8
164.6
97.6
98.9
107.5
8.5
19.9
71.7
19.9
44.5
19.9
8.5
8.5
8.5
8.5
339.8
233.7
637.0
233.7
542.2
233.7
173.1
106.1
107.4
116.0
723.2
686.2
642.8
461.2
452.3
398.2
267.6
152.1
113.8
23.4
714.7
666.3
571.0
441.3
407.8
378.3
259.1
143.6
105.3
14.9
2.18
3.21
1.14
2.16
0.91
1.86
1.63
1.56
1.15
0.22
2.10
2.85
0.90
1.89
0.75
1.62
1.50
1.35
0.98
0.13
260
210
320
210
315
210
145
90
60
72
150
150
150
150
150
150
115
90
60
72
110
60
170
60
165
60
30
-
2.78
3.27
2.01
2.20
1.44
1.90
1.85
1.69
1.90
0.32
-71%
-79%
-65%
-72%
-56%
-68%
-66%
-65%
-58%
-21%
-70%
-77%
-58%
-68%
-50%
-65%
-64%
-61%
-54%
-14%
-68%
-74%
-50%
-65%
-45%
-62%
-60%
-58%
-49%
-11%
1,050
1,250
2,000
1.55
0.98
0.10
1,628
1,225
209
720.9
637.7
157.5
71.7
44.5
8.5
792.6
682.1
166.0
906.6
587.3
52.0
834.9
542.9
43.5
1.26
0.92
0.33
1.05
0.80
0.26
365
350
86
150
150
86
215
200
-
2.48
1.68
0.60
-68%
-56%
-30%
-62%
-52%
-25%
-54%
-47%
-21%
MEDIUM INPUT
Paprika
Coffee (USD 2,000mt)
Tobacco, flue-cured
Coffee (USD 1,500mt)
Tobacco, burley
Coffee (USD 1,360mt)
Cotton
Groundnuts
Soybeans
Maize
HIGH INPUT
Tobacco, flue-cured
Tobacco, burley
Maize
SMALL-SCALE COMMERCIAL FARMERS
LOW INPUT
Tobacco, flue-cured
Tobacco, burley
Maize
1,100
1,100
1,700
1.58
0.89
0.10
1,738
979
178
870.5
519.4
134.6
87.8
51.2
15.2
958.4
570.6
149.8
867.5
459.6
43.4
779.6
408.4
28.2
1.00
0.88
0.32
0.81
0.72
0.19
375
330
80
150
150
80
225
180
-
2.31
1.39
0.54
-60%
-55%
-29%
-54%
-49%
-19%
-47%
-44%
-16%
1,500
1,300
2,550
1.68
0.98
0.10
2,520
1,274
267
1,201.3
651.6
188.6
87.8
51.2
15.2
1,289.1
702.8
203.8
1,318.7
622.4
78.5
1,230.9
571.2
63.3
1.10
0.96
0.42
0.95
0.81
0.31
445
360
95
150
150
95
295
210
-
2.96
1.73
0.83
-63%
-57%
-35%
-58%
-52%
-28%
-51%
-47%
-24%
1,800
1,800
800
800
1,500
800
1,500
1,100
1,300
3,900
1.72
1.18
2.00
1.50
1.02
1.36
0.38
0.30
0.21
0.10
3,096
2,127
1,600
1,200
1,530
1,088
573
333
277
408
1,426.2
784.4
540.4
540.4
943.3
540.4
279.7
141.5
137.9
294.7
87.8
87.8
26.6
26.6
51.2
26.6
15.2
15.2
15.2
15.2
1,514.0
872.2
567.0
567.0
994.5
567.0
294.9
156.7
153.1
309.9
1,669.8
1,342.9
1,059.6
659.6
586.7
547.6
293.6
191.5
138.7
113.7
1,582.0
1,255.1
1,033.0
633.0
535.5
521.0
278.4
176.3
123.5
98.5
1.17
1.71
1.96
1.22
0.62
1.01
1.05
1.35
1.01
0.39
1.04
1.44
1.82
1.12
0.54
0.92
0.94
1.12
0.81
0.32
480
300
310
310
390
310
170
120
70
125
150
150
150
150
150
150
120
120
70
100
330
150
160
160
240
160
50
25
3.48
4.48
3.42
2.13
1.50
1.77
1.73
1.60
1.98
0.91
-64%
-68%
-69%
-58%
-44%
-53%
-55%
-62%
-55%
-33%
-61%
-63%
-67%
-56%
-41%
-51%
-52%
-57%
-49%
-29%
-54%
-59%
-65%
-53%
-37%
-48%
-49%
-54%
-45%
-24%
MEDIUM INPUT
Tobacco, flue-cured
Tobacco, burley
Maize
HIGH INPUT
Tobacco, flue-cured
Paprika
Coffee (USD 2,000mt)
Coffee (USD 1,500mt)
Tobacco, burley
Coffee (USD 1,360mt)
Cotton
Groundnuts
Soybeans
Maize
SOURCE: Keyser (14).
52
Appendix 4: Malawi Financial Indicators for Tobacco and Other Crops
MALAWI: Per Hectare Financial Indicators for Smallholder Farmers
1995-96 data sorted by management level and ranked by net profit.
Production Costs (USD/ha)
Activity
Region
Yield
(kg/ha)
Farm Gate
Price
(USD/kg)
Gross
Revenue
(USD/ha)
Total
variable
costs
Annual
Total costs
investment (excl family
cost
labor)
Farmer Income (USD/ha)
Labour
Gross profit Net profit (gr
(gr revenue - revenue - Return to Return to
var costs)
total cost) var costs total costs
Total
labor
(days/ha)
Net profit per
day total
labor
(USD/ha)
Pct Chg in
Yield & Price
to Gross
Margin = 0
LOW INPUT
Tomato
Dairy
Burley Tobacco
Paprika
Burley Tobacco
Burley Tobacco
Burley Tobacco (IB/Auction)
Burley Tobacco (IB/Auction)
Burley Tobacco (IB/Auction)
IET Rice (irrig)
Burley Tobacco (IB)
Cassava
G'Nuts - Chalimbana
Coffee
Faya Rice (irrig)
Burley Tobacco (IB)
Burley Tobacco (IB)
Faya Rice (rain-fed)
Beans/L-Mz
G'Nuts - oil expressing
Cotton
Local maize
Pigeon Pea/L-Mz
Hybrid maize
Sunflower
Local Sorghum
Local maize
Hybrid maize
Soybean
Tea
North
South
North
Central
Central
South
North
Central
South
Central
North
Central
Central
North
Central
Central
South
Central
Central
Central
Central
Central
South
Central
Central
Central
South
South
Central
South
48,000
5,840
650
800
550
600
650
550
600
3,000
650
2,500
400
1,000
1,500
550
600
800
930
400
350
800
750
1,300
400
450
500
1,000
450
3,000
0.16
0.32
1.62
1.34
1.59
1.45
0.98
1.10
0.92
0.16
0.78
0.08
0.56
0.20
0.23
0.72
0.65
0.21
0.13
0.29
0.33
0.09
0.10
0.09
0.12
0.11
0.08
0.08
0.16
0.08
7,843.1
1,889.4
1,052.7
1,071.9
874.6
870.2
637.7
605.7
551.4
490.2
509.8
212.4
222.2
196.1
338.2
395.4
392.2
169.9
123.6
117.6
114.4
70.6
75.1
114.7
47.1
51.5
39.2
78.4
73.5
235.3
500.0
1,002.8
453.5
490.7
423.7
427.7
301.5
293.0
297.3
283.1
301.5
54.3
86.6
59.8
214.4
293.0
297.3
103.3
64.6
63.8
72.9
37.8
43.2
88.5
28.3
40.1
36.4
87.2
95.9
274.1
158
13
13
13
13
13
13
13
12
13
13
-
500.0
1,161.3
466.6
490.7
436.7
440.8
314.6
306.1
310.3
283.1
314.6
54.3
86.6
71.4
214.4
306.1
310.3
103.3
64.6
63.8
72.9
37.8
43.2
88.5
28.3
40.1
36.4
87.2
95.9
274.1
7,343.1
886.6
599.2
581.2
450.9
442.5
336.2
312.7
254.1
207.1
208.3
158.1
135.6
136.3
123.9
102.4
94.9
66.6
58.9
53.9
41.5
32.8
32.0
26.2
18.8
11.4
2.8
(8.8)
(22.3)
(38.8)
7,343.1
728.1
586.2
581.2
437.9
429.4
323.1
299.6
241.0
207.1
195.2
158.1
135.6
124.7
123.9
89.3
81.8
66.6
58.9
53.9
41.5
32.8
32.0
26.2
18.8
11.4
2.8
(8.8)
(22.3)
(38.8)
14.69
0.88
1.32
1.18
1.06
1.03
1.11
1.07
0.85
0.73
0.69
2.91
1.57
2.28
0.58
0.35
0.32
0.64
0.91
0.85
0.57
0.87
0.74
0.30
0.66
0.28
0.08
(0.10)
(0.23)
(0.14)
14.69
0.63
1.26
1.18
1.00
0.97
1.03
0.98
0.78
0.73
0.62
2.91
1.57
1.75
0.58
0.29
0.26
0.64
0.91
0.85
0.57
0.87
0.74
0.30
0.66
0.28
0.08
(0.10)
(0.23)
(0.14)
788
970
245
287
225
235
245
225
235
185
245
109
107
130
168
225
235
109
85
107
96
74
83
88
59
95
70
85
64
372
9.32
0.75
2.39
2.02
1.95
1.83
1.32
1.33
1.03
1.12
0.80
1.45
1.27
0.96
0.74
0.40
0.35
0.61
0.69
0.50
0.43
0.44
0.39
0.30
0.32
0.12
0.04
(0.10)
(0.35)
(0.10)
-94%
-47%
-60%
-60%
-54%
-54%
-53%
-52%
-46%
-42%
-41%
-74%
-61%
-70%
-37%
-26%
-24%
-39%
-48%
-46%
-36%
-46%
-43%
-23%
-40%
-22%
-7%
11%
30%
16%
North
North
Central
South
North
Central
South
Central
Central
Central
South
Central
Central
South
South
80,000
1,400
1,300
1,350
6,000
1,000
5,800
2,320
1,100
1,200
2,000
3,100
1,300
1,000
2,800
0.16
1.75
1.72
1.58
0.20
0.33
0.08
0.12
0.16
0.12
0.09
0.09
0.09
0.08
0.08
13,071.9
2,450.5
2,236.3
2,132.6
1,176.5
326.8
454.9
278.2
179.7
141.2
181.4
273.5
114.7
78.4
219.6
3,172.8
1,279.5
1,236.1
1,247.6
440.0
166.2
357.3
182.1
103.6
99.9
154.7
250.9
97.0
95.6
247.5
20
20
20
12
-
3,172.8
1,299.1
1,255.7
1,267.2
451.6
166.2
357.3
182.1
103.6
99.9
154.7
250.9
97.0
95.6
247.5
9,899.1
1,171.0
1,000.2
885.0
736.4
160.6
97.6
96.1
76.1
41.3
26.8
22.6
17.7
(17.2)
(27.9)
9,899.1
1,151.4
980.6
865.4
724.9
160.6
97.6
96.1
76.1
41.3
26.8
22.6
17.7
(17.2)
(27.9)
3.12
0.92
0.81
0.71
1.67
0.97
0.27
0.53
0.73
0.41
0.17
0.09
0.18
(0.18)
(0.11)
3.12
0.89
0.78
0.68
1.61
0.97
0.27
0.53
0.73
0.41
0.17
0.09
0.18
(0.18)
(0.11)
960
428
408
418
450
187
443
123
78
83
115
127
92
88
119
10.31
2.69
2.40
2.07
1.61
0.86
0.22
0.78
0.98
0.50
0.23
0.18
0.19
(0.20)
(0.23)
-76%
-50%
-47%
-44%
-63%
-49%
-21%
-35%
-42%
-29%
-15%
-8%
-15%
22%
13%
HIGH INPUT
Tomato
Burley Tobacco
Burley Tobacco
Burley Tobacco
Coffee
Cotton
Tea
Beans/H-Mz
Soybean
Sunflower (hybrid)
Pigeon Pea/H-Mz
Hybrid maize
Local maize
Local maize
Hybrid maize
SOURCE: Keyser (18)
53
Appendix 4: Malawi Financial Indicators for Tobacco and Other Crops
MALAWI: Per Hectare Financial Indicators for Estates
1995-96 data sorted by farm size and ranked by net profit.
Production Costs (USD/ha)
Activity
Production Level
Region
Yield
(kg/ha)
Farm gate
Price
(USD/kg)
Gross
Revenue
(USD/ha)
Total
variable
costs
Annual
investment
cost
Total costs
(excl family
labor)
Farmer Income (USD/ha)
Labor
Gross profit Net profit (gr
(gr revenue revenue Return to Return to
var costs)
total cost)
var costs total costs
Total
labor
(days/ha)
Net profit per
day total
labor
(USD/ha)
Pct Chg in
Yield & Price
to Gross
Margin = 0
LARGE ESTATE
Clonal Tea
Sugar (SUCOMA)
Flue Tobacco
Paprika
Coffee
Macademia Nuts
Sugar (DWANGWA)
Burley Tobacco
Burley Tobacco
Burley Tobacco
Burley Tobacco
Hybrid maize
Indian Tea
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Tenant
Direct (5% loss)
Tenant (15% loss)
Direct
Direct
South
Central
Central
Central
South
South
South
Central
Central
Central
Central
Central
South
2,888
92,851
1,647
1,387
2,714
975
92,840
1,672
1,385
1,726
1,450
6,728
2,294
1.10
0.04
2.40
1.88
2.00
1.25
0.04
1.85
1.69
1.85
1.69
0.13
0.86
3,177
3,423
3,950
2,610
5,427
1,219
3,289
3,092
2,340
3,192
2,451
879
1,980
2,558
3,001
2,911
1,816
4,203
776
3,002
2,467
1,743
2,633
1,928
721
1,812
(13)
633
401
842
89
467
467
467
467
309
337
2,544
3,001
3,545
2,217
5,046
865
3,002
2,934
2,210
3,100
2,395
1,030
2,150
619.0
421.4
1,038.6
794.0
1,223.9
442.8
287.2
625.3
597.0
558.7
523.1
158.7
168.1
632
421
405
393
382
354
287
158
130
92
56
(151)
(169)
0.24
0.14
0.36
0.44
0.29
0.57
0.10
0.25
0.34
0.21
0.27
0.22
0.09
0.25
0.14
0.11
0.18
0.08
0.41
0.10
0.05
0.06
0.03
0.02
(0.15)
(0.08)
424
315
421
326
700
223
281
471
384
471
384
66
304
1.49
1.34
0.96
1.21
0.55
1.59
1.02
0.34
0.34
0.19
0.15
(2.28)
(0.56)
-38%
-27%
-38%
-43%
-30%
-56%
-22%
-27%
-71%
-23%
-65%
10%
5%
Improved Tenant
Impv Tenant (15% loss)
Avg. Tenant
Avg Tenant (15% loss)
Tenant
Tenant
Tenant (15% loss)
Tenant
Central
Central
Central
Central
Central
Central
Central
Central
1,235
1,303
1,096
1,154
4,014
4,014
4,080
1,123
1.69
1.69
1.55
1.55
0.13
0.13
0.13
1.50
2,088
2,202
1,699
1,788
525
525
533
1,688
1,658
1,849
1,348
1,497
401
401
415
1,332
244
244
244
244
221
221
221
178
1,902
2,093
1,592
1,741
622
622
636
1,510
429.5
353.4
351.2
291.4
124.0
124.0
118.3
355.4
186
109
107
47
(97)
(97)
(103)
178
0.26
0.19
0.26
0.19
0.31
0.31
0.29
0.27
0.10
0.05
0.07
0.03
(0.16)
(0.16)
(0.16)
0.12
384
384
444
444
104
104
104
279
0.48
0.28
0.24
0.11
(0.93)
(0.93)
(0.99)
0.64
-68%
-60%
-63%
-55%
27%
27%
55%
-62%
Tenant
Tenant (15% loss)
Tenant
Tenant
Tenant
Tenant (15% loss)
Tenant
Central
Central
Central
Central
Central
Central
Central
1,119
1,183
1,010
1,010
2,845
2,892
2,905
1.60
1.60
0.16
0.16
0.13
0.13
0.13
1,790
1,893
165
165
372
378
380
1,540
1,711
143
143
353
363
366
57
57
23
23
23
23
23
1,597
1,769
166
166
376
386
389
250.4
181.7
21.8
21.8
19.0
14.9
13.8
193
125
(1)
(1)
(4)
(8)
(9)
0.16
0.11
0.15
0.15
0.05
0.04
0.04
0.12
0.07
(0.01)
(0.01)
(0.01)
(0.02)
(0.02)
456
456
114
114
137
137
137
0.42
0.27
(0.01)
(0.01)
(0.03)
(0.06)
(0.07)
-64%
-54%
-46%
-46%
-17%
-4%
0%
MEDIUM ESTATE
Burley Tobacco
Burley Tobacco
Burley Tobacco
Burley Tobacco
Hybrid maize
Hybrid maize
Hybrid maize
Paprika
SMALL ESTATE
Burley Tobacco
Burley Tobacco
Soybean
Soybean
Hybrid maize
Hybrid maize
Hybrid maize
SOURCE: Keyser (18)
54